Survey COST OF DOING BUSINESS 2017 Chișinău, December 2017 Developed by: NGO Rural Economic Development Center PROMO-TERRA Contents 2 Cost of Doing Business Contents ABBREVIATIONS .......................................................................................................................................................................................... 7 EXECUTIVE SUMMARY ................................................................................................................................................................................. 8 PURPOSE OF THE STUDY ...........................................................................................................................................................................12 METHODOLOGY .........................................................................................................................................................................................13 1 GENERAL INDICATORS ........................................................................................................................................................................19 1.1 Regulatory environment – general considerations .................................................................................................... 19 1.2 General time indicator ............................................................................................................................................... 19 1.3 General perception of the changes in the business environment ............................................................................... 20 1.4 General assessment of various business aspects ........................................................................................................ 21 2 REGISTRATION PROCEDURE ...............................................................................................................................................................22 2.1 Regulatory framework ............................................................................................................................................... 22 2.2 Time to complete registration procedures ................................................................................................................. 23 2.3 Costs of registration procedures ................................................................................................................................ 24 2.4 Perception of procedures ........................................................................................................................................... 24 2.5 Summary of analysis ................................................................................................................................................. 25 3 CONSTRUCTION ...................................................................................................................................................................................27 3.1 Regulatory framework ............................................................................................................................................... 27 3.2 Costs and time required to obtain construction permits ............................................................................................ 28 3.3 Perception of procedures ........................................................................................................................................... 29 3.4 Summary of analysis ................................................................................................................................................. 30 4 LICENSING ............................................................................................................................................................................................31 4.1 Regulatory framework ............................................................................................................................................... 31 4.2 Number of licenses .................................................................................................................................................... 32 4.3 Costs to obtain a license ............................................................................................................................................ 32 4.4 Perception of procedures ........................................................................................................................................... 33 4.5 Summary of analysis ................................................................................................................................................. 34 5 NOTIFYING OF THE TRADE ACTIVITY .................................................................................................................................................35 5.1 General regulatory framework .................................................................................................................................. 35 5.2 Time required to submit a notification ...................................................................................................................... 35 5.3 Perception of the notification procedure ................................................................................................................... 35 5.4 Summary of analysis ................................................................................................................................................. 36 6 TRADING ACROSS BORDERS ................................................................................................................................................................37 6.1 Regulatory framework ............................................................................................................................................... 37 6.2 Import transactions .................................................................................................................................................... 38 6.2.1 Certification costs of imported goods ............................................................................................................... 38 6.2.2 Customs costs ................................................................................................................................................... 39 6.2.3 Perception of import procedures....................................................................................................................... 39 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Contents 3 Cost of Doing Business 6.3 Export transactions .................................................................................................................................................... 40 6.4 Summary of analysis ................................................................................................................................................. 40 7 CERTIFICATION OF GOODS ..................................................................................................................................................................42 7.1 Regulatory framework ............................................................................................................................................... 42 7.2 Certification costs ...................................................................................................................................................... 42 7.3 Perception of certification procedures ....................................................................................................................... 43 7.4 Summary of analysis ................................................................................................................................................. 44 8 SANITARY OPERATING AUTHORIZATIONS..........................................................................................................................................45 8.1 Regulatory framework ............................................................................................................................................... 45 8.2 Obtaining sanitary operating authorizations .............................................................................................................. 45 8.3 Perception of the process to obtain a sanitary operating authorization ..................................................................... 45 8.4 Summary of analysis ................................................................................................................................................. 46 9 SANITARY CERTIFICATION OF GOODS.................................................................................................................................................47 9.1 Regulatory framework ............................................................................................................................................... 47 9.2 Obtaining sanitary certificates ................................................................................................................................... 48 9.3 Perception of procedure to obtain a sanitary certificate ............................................................................................ 48 9.4 Summary of analysis ................................................................................................................................................. 49 10 PHYTOSANITARY CERTIFICATION ......................................................................................................................................................50 10.1 Regulatory framework ............................................................................................................................................... 50 10.2 Obtaining phytosanitary certificates .......................................................................................................................... 50 10.3 Perception of procedure to obtain a phytosanitary certificate ................................................................................... 51 10.4 Summary of analysis ................................................................................................................................................. 52 11 INSPECTIONS .......................................................................................................................................................................................53 11.1 Regulatory framework ............................................................................................................................................... 53 11.2 Number and duration of inspections .......................................................................................................................... 53 11.3 Expenses incurred folowing the inspections ............................................................................................................. 54 11.4 Perception of number of inspections and difficulties ................................................................................................ 55 11.5 Summary of analysis ................................................................................................................................................. 57 12 TAXES ..................................................................................................................................................................................................59 12.1 Regulatory framework ............................................................................................................................................... 59 12.2 Administration of taxes ............................................................................................................................................. 59 12.3 Main difficulties in paying taxes ............................................................................................................................... 60 12.4 Summary of analysis ................................................................................................................................................. 61 13 PRICE REGULATION .............................................................................................................................................................................62 13.1 Regulatory framework ............................................................................................................................................... 62 13.2 The extent of goverment's intervention in price setting............................................................................................. 62 13.3 Perception of price regulation ................................................................................................................................... 62 13.4 Summary of analysis ................................................................................................................................................. 62 14 REGULATION OF LABOUR RELATIONS ................................................................................................................................................64 14.1 Regulatory framework ............................................................................................................................................... 64 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Contents 4 Cost of Doing Business 14.2 Availability of workforce .......................................................................................................................................... 64 15 EXECUTION OF CONTRACTS ................................................................................................................................................................66 16 PROMOTION OF PERSONAL INTERESTS OF PUBLIC EMPLOYEES ........................................................................................................67 17 EVALUATION OF THE JUDICIARY SYSTEM ...........................................................................................................................................68 17.1 Regulatory framework ............................................................................................................................................... 68 17.2 Methods used to settle disputes ................................................................................................................................. 68 17.3 Assessing the efficiency of using courts.................................................................................................................... 69 17.4 Summary of analysis ................................................................................................................................................. 69 CONCLUSIONS ............................................................................................................................................................................................70 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Tables and Figures 5 Cost of Doing Business List of Tables Table 1. Distribution of companies participating in the study .......................................................................................... 15 Table 2. Amount of time to complete the primary registration procedure, by government institution, in the last three years .............................................................................................................................................................................. 24 Table 3. Amount of time to amend the incorporation documents, by government body, in the last three years ......... 24 Table 4. Registration-related problems .............................................................................................................................. 25 Table 5. Duration and amount of time spent to register with the SRC in recent years .................................................. 26 Table 6. Time and costs required to obtain permissions to commence reconstruction works ....................................... 28 Table 7. Time and costs required to obtain permissions to place into service the reconstruction works ..................... 29 Table 8. Problems relating to obtaining permissions for reconstruction and repairs .................................................... 29 Table 9. Average amount of time to obtain permissions and final approval, days ......................................................... 30 Table 10. Average costs to obtain a license ......................................................................................................................... 33 Table 11. Licensing related problems ................................................................................................................................. 33 Table 12. Evolution of costs related to licensing activities ................................................................................................ 34 Table 13. Documents required at the time of notification ................................................................................................. 36 Table 14. Costs and time to complete import customs procedures .................................................................................. 39 Table 15. Most significant problems on import ................................................................................................................. 39 Table 16. Changes in import-export procedures and regulations .................................................................................... 41 Table 17. Problems faced in the certification process ........................................................................................................ 43 Table 18. Changes in the process of certification of goods ................................................................................................ 44 Table 19. Average expenses incurred by respondents to obtain a sanitary authorization ............................................. 45 Table 20. Problems faced in the process of obtaining sanitary authorizations ............................................................... 46 Table 21. Changes in the process of obtaining a sanitary authorizations ........................................................................ 46 Table 22. Average costs incurred by respondent companies to obtain a sanitary certificate ........................................ 48 Table 23. Problems faced in obtaining sanitary authorizations........................................................................................ 49 Table 24. Changes in procedures for obtaining sanitary certificates ............................................................................... 49 Table 25. Average costs incurred by respondents to obtain a phytosanitary certificate ................................................ 51 Table 26. Problems faced during the process of obtaining phytosanitary certificates ................................................... 51 Table 27. Changes in the procedures to obtain phytosanitary certificates ...................................................................... 52 Table 28. Average number and duration of inspections .................................................................................................... 54 Table 29. Share of companies that incurred payments following the inspections in the last year ................................. 55 Table 30. Impartiality of public servants ............................................................................................................................ 56 Table 31. Purposes of the inspection visits .......................................................................................................................... 56 Table 32. How inspections have changed ............................................................................................................................ 57 Table 33. Changes in the share of inspected companies, % per total surveyed companies............................................ 57 Table 34. Frequency of inspections (calculated only for companies inspected by respective authority) ...................... 58 Table 35. Frequency of inspections (calculated for all companies contained in the sample) ......................................... 58 Table 36. The necessary number of accountants to ensure timely and correct payment of taxes ................................. 59 Table 37. Time spent to submit a statement, hours ........................................................................................................... 60 Table 38. Taxes that generate most difficulties .................................................................................................................. 60 Table 39. Problems encountered in the taxation system ................................................................................................... 61 Table 40. Comparing the tax administration system ......................................................................................................... 61 Table 41. Methods used by government to control prices ................................................................................................. 62 Table 42. Price regulation in the Republic of Moldova ..................................................................................................... 63 Table 43. Assessment of labour force availability .............................................................................................................. 65 Table 44. Assessment of main problems related to labour relations regulation .............................................................. 65 Table 45. Monitoring the execution of contracts in Moldova ........................................................................................... 66 Table 46. Promotion of personal interests of public servants ........................................................................................... 67 Table 47. Methods used to solve conflicts, % of companies that had to solve conflicts .................................................. 69 Table 48. Reasons for not going to court ............................................................................................................................ 69 Table 49. Efficiency of resolving disputes through courts ................................................................................................. 69 Table 50. Comparison of main indicators ........................................................................................................................... 73 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Tables and Figures 6 Cost of Doing Business List of Figures Figure 1. Geographical distribution of companies ............................................................................................................ 16 Figure 2. Distribution by legal form of business ............................................................................................................... 16 Figure 3. Share of companies based on number of employees ......................................................................................... 17 Figure 4. Sample structure by type of activity .................................................................................................................. 17 Figure 5. Share of time spent to comply with regulation requirements ........................................................................... 20 Figure 6. Assessment of changes in the business environment ......................................................................................... 20 Figure 7. Difficulties encountered ....................................................................................................................................... 21 Figure 8. Share of enterprises that contacted the State Registration Chamber over the last three years .................... 23 Figure 9. Problems faced by economic agents in the registration process over the last three years ............................. 25 Figure 10. Perception of changes in procedures governing the use of spaces .................................................................. 29 Figure 11. Problems relating to obtaining permissions for construction and repairs .................................................... 30 Figure 12. Perception of changes in the licensing process, % ........................................................................................... 33 Figure 13. Problems related to licensing ............................................................................................................................. 34 Figure 14. How managers perceive the transition from authorizations to notifications ................................................ 35 Figure 15 Handling situations of lacking certificate of compliance .................................................................................. 38 Figure 16. Perception of changes in import procedures .................................................................................................... 39 Figure 17. Perception of difficulties related to import transactions ................................................................................. 40 Figure 18. Perception of changes in export procedures ..................................................................................................... 40 Figure 19 Share of companies that certify goods ............................................................................................................... 43 Figure 20. Changes in the certification process .................................................................................................................. 43 Figure 21. Exporters’ perception of difficulties related to the certification procedures ................................................ 44 Figure 22. Changes in the process of obtaining sanitary authorizations ......................................................................... 46 Figure 23. Problems encountered in the process of obtaining sanitary authorizations .................................................. 46 Figure 24. Changes in the process of obtaining sanitary certificates ............................................................................... 48 Figure 25. Problems encountered in obtaining sanitary certificates ................................................................................ 49 Figure 26. Changes in the process of obtaining phytosanitary certificates ...................................................................... 51 Figure 27. Problems faced in the process of obtaining phytosanitary certificates .......................................................... 52 Figure 28. Changes in the number of inspections .............................................................................................................. 55 Figure 29. Changes in the perception of state inspection procedures .............................................................................. 56 Figure 30. Taxes that generate most difficulties ................................................................................................................. 60 Figure 31. Changes in the tax system .................................................................................................................................. 61 Figure 32. Companies that had to settle disputes ............................................................................................................... 68 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Abbreviations 7 Cost of Doing Business Abbreviations CIS Commonwealth of Independent States CMEA Classifier of Moldova's Economy Activities JSC Joint Stock Company LLC Limited liability company LPA Local Public Authorities ME Municipal Enterprise NAC National Anticorruption Center NBM National Bank of Moldova NHIC National Health Insurance Company NSIH National Social Insurance House SE State Enterprise SRC State Registration Chamber USD United States Dollar VAT Value Added Tax Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Executive summary 8 Cost of Doing Business Executive summary This study was organized with the support of the Ministry of Economy and the World Bank. The Survey on Cost of state regulation of business activity is carried out annually since 2002. Survey timeframe The data collection period was from September to October 2017. The survey study covered the registration, construction, trading across borders, purchasing of equipment - in the last three years, the judiciary environment - in the last two years and for the remaining areas - the last year or the time of questioning. Method Interviews were carried out by trained personnel, guided by a structured questionnaire approved by the beneficiary. Interviewers travelled to respondent’s business office to conduct face to face interviews with company managers. Companies have been randomly selected from the total number of companies in Moldova, currently functioning. The data was analysed using the SPSS software. To ensure the representativeness of the obtained results, the high dispersion series outliers were removed. In many cases the median was used to distinguish the central tendency. Indicators were calculated by overall country, region, type and size of company. The report contains only relations bearing some sort of relevance. Average indicators with values displaying very large dispersions due to the low number of respondents were not included in the report. Sample For the questioning were selected randomly 630 representative companies based on their legal form, number of employees, type of activity and geographic location. The sample does not contain agricultural and individual enterprises, banking institutions, or companies located on the left bank of the Nistru River. Around 72% of the surveyed companies are located in Chisinau. Most entities (94%) are limited liability companies. Companies employing up to 10 people accounted for 85% of the total. General time indicator The general time indicator describes the managers' perception of the degree of government interference in the company's activity. The 2017 indicator remained steady compared to 2016, at 8%. Registration In 2017, it took 4 days to register a company with the State Registration Chamber - the average amount of time recorded in the last 3 years. The amount of time required to modify the incorporation documents has slightly decreased. Most businesses do not encounter difficulties in the registration process. The share of respondents who use intermediary services to complete the registration procedures has diminished. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Executive summary 9 Cost of Doing Business Construction In 2017 the procedure for issuing urban planning certificates and construction permits by the one-stop shop for the authorization of construction works has been finalized. The amount of time to obtain construction permits has slightly decreased. Over the past three years, almost 29% of respondents have moved into new premises. Of these, only 3,3% have built them, their number decreasing continuously over the last years. Most of respondents that moved to new locations (77,3%) have not carried out any alterations to the premises. About 24% of them were required to get permissions to use the premises. Licensing In 2017, the share of companies that had a license at the time of questioning (42%) has not changed compared to 2016. The average number of licenses per company increased from 1,1 to 1,4 - a value registered throughout 2013-2015. The amount of time and cost to obtain a license have not changed significantly. The share of respondents who paid unofficial payments has diminished. Notification More than half (54%) of Moldovan companies fall under the Law on domestic trade. Three quarters (76%) of them have submitted notifications to local public authorities of their operating trade activities. The amount of time to prepare and submit a notification was 6,0 days. Managers have spent around 4,6 hours on this procedure. More than half of respondents do not think that carrying out a trade activity has become easier with the elimination of the need to obtain an authorization. This opinion is influenced by the LPA's request that the notification be accompanied by documents that were necessary to issue an authorization. Import About 34% of importers were required to obtain compliance certificates conforming to Moldovan standards for their imported goods. Of these, more than three quarters had certificates of compliance with the requirements of the country of origin. In a quarter of cases the goods were retained at customs. The certification of imported goods took 5,7 days. The cost of obtaining a certificate has decreased from USD 202 to 137. About 16% of respondents paid bribes to obtain certificates. About 40% of importers were required to obtain sanitary authorizations for imported goods. The average amount of time to complete a customs procedure increased from 2,7 days in 2016 to 3,1 days in 2017. Related costs increased to USD 307. Export The procedures for an export transaction took an average 2,1 days, slightly longer than last year. The cost of procedures has decreased to USD 105. Certification of goods and services Only 9% of the companies contained in the sample certified their goods. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Executive summary 10 Cost of Doing Business About 60% of companies certify batches of goods. This certificate is now obtained in significantly less time - from 7,6 days in 2016 to 3,0 days in 2017. Costs related to certification of batches of goods amount to USD 106, an year-on-year increase by USD 60. About 4% of companies certify mass-manufactured goods. The amount of time required to obtain this certficate has not changed significantly and stands at 10 days. Related costs have increased to USD 122. Sanitary operating permits In 2017 the process of obtaining sanitary operating permits has not undergone major changes. About 39% companies had to obtain sanitary operating permits. A sanitary permit is obtained in 6,7 days. The total cost is about USD 75. Sanitary certification of goods Only 8% of respondents had to obtain sanitary certificates. The process took 5 days on average and cost about USD 60, without significant changes compared to the previous year. Most companies have not pointed out any changes in the sanitary certification process. Phytosanitary certification Companies are less involved in phytosanitary certification compared to sanitary or compliance certification. The 6% of respondents that applied for this certificate paid USD 34 and obtained it in 2 days. Compared with the previous year, both indicators have essentially not changed. It should be noted that the sample does not include agricultural enterprises and farm households that are affected by the respective regulatory area to a greater extent. Inspections In 2016, the share of verified companies has diminished, as a results of the moratorium on inspections imposed by the Government. The waiver of moratorium at the moment has led to an increase in the number of inspections to 2,9 visits per year. The total amount of time spent by inspectors with a company has increased more than twice (11,5 hours/year). Most government institutions now carry out inspections more frequently. The share of companies that were fined has increased. Meanwhile, the share of companies that paid bribes has diminished. Only 9% of companies said that they are treated equally by the law. About 38% are convinced that the law is applied selectively. Taxes The procedure for calculating, reporting and paying corporate income tax generates the most difficulties. Price regulation No major changes were noted in this field over the past three years. The government interferes in product price formation at 13% of companies. The sales volume at regulated prices slightly increased to 3,9%, returning to the 2015 value. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Executive summary 11 Cost of Doing Business Regulation of labour relations Most of the companies have the necessary number of employees. One in four interviewed companies think they have staff shortage. No specific problems have been identified in labour relations regulation. Contract monitoring Over the past thirteen years there have been no significant fluctuations in the contract execution process. The state interfered in contract signing process of 4% of companies. Judiciary system Every fifth respondent had to settle disputes. Their share has not changed significantly over the last four years. Most of the disputes were business conflicts with other companies. The share of companies taking to courts to address the conflicts has diminished, returning to the level of 2015 (46%). Almost a third of businesses used various unofficial but legal methods. Disputes were solved by illegal methods in only 7% cases, with no major changes compared to the previous year. Around half of the companies who filed a lawsuit were satisfied with the decision. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Purpose of the study 12 Cost of Doing Business Purpose of the study The study was developed to monitor the main indicators describing the business environment regulation as well as to quantify the impact on economic agents of the actions undertaken by the Government during the analyzed period. The project was carried out with a focus on the following goals:  Provide the Government of the Republic of Moldova, as well as the national and international institutions with quantitative data on the cost incurred by businesses to comply with government regulations.  Assist the Moldovan Government in the qualitative policy analysis with a view to implement the necessary decisions to improve business and investment climates in Moldova.  Assist the civil society institutions that make recommendations and need to monitor their impact.  Establish a tool to monitor the changes in the business environment and the impact of the measures taken to reduce barriers and corruption in business. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Methodology 13 Cost of Doing Business Methodology Outlines The objective of the study can be achieved by measuring and comparing in time the perception of the entrepreneurs and managers of the companies about the costs incurred by them in order to comply with the requirements imposed by various government regulations. The method is based on the assumption that the decision to start and develop a business is based more on managers' perception on costs rather than on the actual expenses incurred by them. If managers feel less pressure in a certain regulatory domain, it is deemed as a positive fact, even if no improvements have been made in the respective domain in recent years. Similarly, cases where government bodies have undertaken improvements in a certain area, but the changes were not made known to companies or were insufficiently "visible" to be referred to by managers, were deemed as a neutral fact. Managers' perceptions of virtually every analyzed segment are depicted concurrently with regulatory costs, expressed in terms of time and money, pursuant to the regulations in effect in the Republic of Moldova. Areas analyzed In order to ensure the comparability of the results, the questionnaire developed in this study follows with small changes the logic of the questionnaires used in previous surveys. In order to keep the questionnaire updated with the latest changes to the current legislation, the chapter on trade authorizations was modified and the questions regarding the need to return VAT invoices upon the replacement of the founder were excluded. Other changes refer to removing the regulatory areas with impact on an insignificant number of companies, such as the construction of new premises and the procurement of equipment, as well as explaining certain questions that often required clarification on behalf of the interviewers. Regulatory costs are analyzed on the following components, where applicable:  taxes/tariffs established by state institutions;  various legal payments to people outside the company or institutions, intended to facilitate the process of compliance with state regulations (lawyers, experts in various fields, acquaintances who have passed these procedures, etc.);  payments for notary services that are required to comply with state regulations;  transportation costs for travelling to the regulatory body or to collect the necessary documents (round trip);  various "voluntary" contributions made under the pressure by state bodies to facilitate the process of obtaining documents;  bribery and other unofficial payments to representatives of state bodies to facilitate regulatory procedures;  time spent by company employees to obtain the necessary documents;  amount of time spent to obtain documents, from the time the procedure was initiated until the required document was obtained. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Methodology 14 Cost of Doing Business The overall perception is analyzed for each area of regulation to unveil the changes in the complexity of procedures compared to the previous year (more difficult/bad, no changes, simpler/good). It also analyzes, if necessary, on a scale of one to five, the impact of various impediments in the regulatory area in question. Selection of companies To select businesses for interviewing a database was created comprising all companies functioning at the time of questioning, excluding farming households, financial institutions and individual enterprises. The database does not contain legal persons that do not carry out economic activities: nongovernmental organizations, community associations, educational institutions, housing associations and others. The selection of companies to be excluded was carried out based on CMEA codes. The regulatory framework of these companies is specific and does not comply with the purpose of this study. For the survey, a sample of 600 companies was randomly generated from the database using the SPSS programme. Each company had equal chances to be selected. The sample was tested in terms of representativeness, using four criteria: region (raion), field of activity, legal & organizational form and number of employees. The sample structure was compared with the general population structure, from which it was extracted. Cases where significant differences (of more than 1%) were seen between the share of general collectivity and the sample, the "surplus" companies were removed from the general population. As a result, another 20 companies were randomly selected from the "deficient" group of companies, using the SPSS software. After verifying the structure of the sample with that of the collectivity, another 10 companies were selected using the above method. In several instances, no representatives of the company could be found at the legal address. Using the information found on the internet or the landline telephone numbers, interviewers travelled to the premises where the actual activity was carried out. Businesses that could not be found at both addresses were excluded from the sample. In some cases the persons entitled to offer information could not be contacted after repeated attempts or they refused to be interviewed. Companies that were removed from the sample were replaced by others, that were part of the same group, according to the four criteria above. Approximately 19% companies refused to be interviewed, other 35% could not be found at the address. There has been noted an improvement of these indicators compared to the previous year and the 7 p.p. decrease of the refusal rate indicates that companies are now more open in relation to business regulatory issues. Sample The sample includes 630 businesses across the country except the raions located on the left bank of the Nistru river. In order to make region-wise comparisons, the raions and Bălți Municipality were grouped into three regions: north, centre and south. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Methodology 15 Cost of Doing Business Table 1. Distribution of companies participating in the study Region Companies Share Chisinau 454 72% North 64 10% Centre 68 11% South 44 7% Legal form Limited liability companies 589 93,5% Joint stock companies 17 2,7% State or public enterprises 4 0,6% Other 20 3,2% Number of employees 1 – 10 533 84,6% 11 – 50 73 11,6% 51 – 200 18 2,9% > 200 6 1,0% Field of activity Food industry 16 2,5% Other industries 54 8,6% Trade 265 42,1% Transport 43 6,8% Constructions 35 5,6% Services (excluding transport) 159 25,2% Other companies (management consultancy, 58 9,2% scientific activity, legal advice, research, etc.) Most of the interviewed companies are located in Chisinau (72%). Around 10% are located in the north, including the municipality of Bălți. Companies located in the centre accounted for 11% of the total. The remaining entities are found in the south region (see Figure 1). Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Methodology 16 Cost of Doing Business Figure 1. Geographical distribution of companies South; 7% North; 10% Centre; 11% Chișinău ; 72% Similar to previous surveys, limited liability companies made up more than 90% of the total number of the surveyed companies (see Figure 2) Figure 2. Distribution by legal form of business SE and ME; 1% Other; 3% JSC; 3% LLC; 94% Most companies have up to 10 employees, their share has not changed compared to previous studies. (see Figure 3). Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Methodology 17 Cost of Doing Business Figure 3. Share of companies based on number of employees 51-200 employees; more than 200 3% employees; 1% 11-50 employees; 12% 1-10 employees; 85% More than 40% of the surveyed companies carry out trade activities. Companies in the service industry, including transport, account for more than 30%. Compared with previous years, the distribution has not changed significantly. Figure 4. Sample structure by type of activity Industry - other; Food industry; 3% 9% Construction; 6% Transport; 7% Trade; 42% Other services; 25% Interviewing The persons approved to conduct interviews were accepted only after completing special training. Where possible, respondents were informed in advance about the interviewer's visit. The interview was conducted with the first person in the company or his delegated representative. The respondent was informed about the purpose of the survey. Respondents were interviewed in face-to- face interviews, based on questionnaires structured by regulatory areas. In order to facilitate the interviewing process and avoid ambiguities in the interpretation of the text, the questions were set up in the form that would be read to the respondent. Also, the questionnaire contained references to different questions depending on the answer. In order to prevent a distorted assessment of managers’ perception, it was recommended, if possible, Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Methodology 18 Cost of Doing Business that they avoid consulting the accounting records. Interviewers were instructed to avoid suggesting answers or objecting to the answers provided by managers. Checking the quality of data collection In order to ensure the quality of data collection, about 10% of interviewed companies were randomly contacted. Following a short discussion on the phone, it was verified that: 1. the interviewer has indeed discussed with the company official 2. answers to several questions match those noted in the questionnaire. Data processing The statistical data obtained in the survey were analysed using the SPSS statistical program. Before starting the calculation of indicators, the outliers in the database most likely to distort the average values were removed. The threshold is decided upon by the expert that performs the analysis. As a rule, the elimination of one data should not affect the average value of the series. In practice, the degree depends on the number of answers and the size of dispersion. If the resulted dispersion is too high, the indicator average is not representative and it is removed from the analysis results. The average values are calculated both within the sample and divided into groups, depending on the: region, company size, type of activity and organizational and legal form. The report contains only results bearing some kind of correlation. Often times, the dispersion drawn by the amount of payments is too high to allow the calculation and the analysis of the average amount. However, it might prove useful to include the data on the share of companies who made such payments. E.g. it is important to see how the share of companies that made unofficial payments has changed. For areas where the number of respondents is insignificant, only synthetic indices were calculated per total country. The average data was calculated only for respondents who answered the corresponding question. For example, the average transportation expenses are calculated only for respondents who mentioned having incurred such expenses. The average total expenses represents the average component expenses, weighted by the number of respondents who have incurred such expenses. The value of indicators included in the report are calculated in US dollars at a rate set by the National Bank of Moldova during that period or, where applicable, at the time of questioning. The following exchange rates set by the National Bank were used in the study: 2015 - 18,82 2016 - 19,92 January-October 2017 - 18,72 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra General Indicators 19 Cost of Doing Business 1 General Indicators 1.1 Regulatory environment – general considerations The main laws that regulate the entrepreneurial activity are as follows:  Law no. 235 of 20 July 2006 on Fundamental principles governing entrepreneurial activity (Guillotine II). Some of the principles to be mentioned:  The tacit approval to start and/or operate a business activity where the applicant is not notified within the deadline set by law.  The advisory status of the state supervision of entrepreneurial activity, except for financial and tax.  Nullity of payments for services rendered and documents issued to entrepreneurs by public authorities if they are not approved by law.  Prerogative of the Parliament in establishing the compulsory technical and sanitary conditions, standards and other similar documents.  Handling doubts of law enforcement in favour of the entrepreneur  Law no. 280-XVI of 14 December 2007 and Law no. 281-XVI of 14 December 2007, approved for the purpose of adapting the regulatory framework to the principles laid down in Law no. 235-XVI.  Law no. 160 of 22 June 2011 on Regulation through authorization of entrepreneurial activity and Law no. 162 of 22 July 2011 on Amendment and supplement of certain legislative acts that establish the Nomenclature of permissive documents, as well as sanctions against persons in key positions who delay the release of permissions or request additional documentation that is not set out in the Nomenclature (Guillotine II+). 1.2 General time indicator The general time indicator is a synthetic indicator broadly Companies in Other Services (6,7%) and describing the influence of state bodies over a company. It Trade (7,3%) spend the least amount of time to communicate with state bodies. represents the perception of the amount of time the company Companies in Non-food Industry spend management spends to communicate with representatives of the the longest period of time for this purpose (10,7%). state bodies. Throughout 2010-2015 the indicator has virtually Managers of companies with up to 10 not changed, fluctuating between 10% and 11%. In 2017, the employees, which account for 80% of the sample, spend on average 7,6% of indicator did not change compared to 2016 – standing at 8%. the time on communicating with state bodies, while companies with more than The absolute value of the indicator is relevant to a limited extent. 10 employees feel more pressure from However, it is important to observe how the indicator changes state bodies (9,7%). over time, as shown in Figure 5. By regions, the best situation is observed in the North (6,3% of the time), while the South experiences the opposite, with managers spending an average 9,3% of their time on this process. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra General Indicators 20 Cost of Doing Business Figure 5. Share of time spent to comply with regulation requirements 18% 17% 16% 16% 14% 13% 14% 11% 11% 10% 10% 11% 10% 12% 10% 10% 7,9% 7,9% 8% 6% 4% 2% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1.3 General perception of the changes in the business By sector, companies in Construction (34%) and Transport (30%) environment account for the largest number of companies that believe that doing business in Moldova has become more difficult In 2017 respondents' perception of In R&D, scientific, legal, notarial, consulting (26%) and Other services changes in the business environment (24,5%), the number of managers who saw improvements in the business environemnt surpassed the number of managers who say the opposite has improved. The share of companies Companies in Chisinau saw more improvements in the business who noticed improvements has grown, environment (25,2%) compared to companies in the rest of the country while the share of businesses who (7,4%). stated that the situation has worsened At the same time, companies in both Chisinau (23%) and the rest of the country (22,2%) noted a worsening of the business environment. has decreased. It is worth mentioning, however, that the share of the latter continues to be higher. This indicator measures the trust managers and entrepreneurs have in state institutions rather than the implemented policies. It depicts the business environment’s perception of state’s image. Figure 6. Assessment of changes in the business environment 0% 20% 40% 60% 80% 100% 2006 34% 40% 25% 2007 30% 47% 24% 2008 32% 53% 15% 2009 42% 53% 5% 2010 26% 52% 22% 2011 33% 42% 25% 2012 36% 45% 18% 2013 33% 49% 18% 2014 46% 43% 11% 2015 30% 55% 15% 2016 27% 60% 13% 2017 23% 57% 20% worse no changes better Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra General Indicators 21 Cost of Doing Business 1.4 General assessment of various business aspects The biggest problems faced by companies in managing and operating their business were related to frequent changes in the legislation, tax system and protection against unfair competition. The graph below shows how the regulatory areas have changed over the last four years in terms of their impact on business environment. Certification of goods is the least challenging procedure. Figure 7. Difficulties encountered 3,5 3,1 3,1 2,9 2,7 2,8 2,8 3 2,6 2,7 2,6 2,6 2,5 2,5 2,2 2,3 2,2 2 1,5 1 0,5 0 Inspections Registration Construction Tax system Licensing Public servants requesting Unfair competition Need to make unofficial Frequent changes in legislation Promoting public servants' Law applied selectively Import-export operations Authorizations Certification of goods payments interests favours 2014 2015 2016 2017 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Registration procedure 22 Cost of Doing Business 2 Registration procedure 2.1 Regulatory framework The State Registration Chamber has the authority to register new businesses and amend the incorporation documents. These procedures are regulated by Law no. 220-XVI of 19 October 2007 on State registration of legal entities and individual entrepreneurs" (effective 30 May 2008). In order to officially register a business, the following documents are required: a) application for registration, compliant with the sample approved by the state registration body; b) decision on incorporation and incorporation documents of the legal person, based on its legal form, in two copies; c) a document confirming the payment of the registration fee. To register their business with the state, foreign-funded legal entities are required to submit additional documents: a) excerpt from the national register of investor's resident country; b) incorporation documents of the foreign legal entity; According to Law 21 of 04 March 2016, procedures related to state registration are carried out through the one stop shop for state registration office. This is a "mechanism whereby the state registration body delivers to parties engaged in entrepreneurial activities, through one access point, advice on legal formalities regarding the incorporation and registration of a legal person and of an individual entrepreneur; verifies the name of the legal entity, produces the incorporation documents, the state registration, publishes the information in the electronic Newsletter; requests the necessary information on registration from public authorities without involving the registrant; distributes the elements contained in the Register of legal entities and the Register of individual entrepreneurs to relevant authorities responsible for tax, statistical, health and social records." The state registration is carried out within one office day. Registration of legal entities and amendments to the incorporation documents cost MDL 1149. Other services related to the state registration are rendered for the amount set by Law no. 220-XVI of 19 October 2007. The State Registration Chamber is responsible for the legal person’s tax, statistical, health and social registration (record) by submitting electronically the data on its registration to relevant authorities. The Chamber also notifies the legal person of the registration process. Law no. 90 of 29 May 2014 (published on 27 June 2014) simplified the procedures to suspend an activity, to reorganize or close a company. The Law also reduced the waiting period from the moment the notice has been published in the Official Gazette. Government bodies may request information at no charge from the State Register only in electronic form. Law no. 104 of 9 June 2017, published on 7 July 2017, is to further simplify the procedures for liquidation of companies by clarifying and simplifying respective procedures. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Registration procedure 23 Cost of Doing Business 2.2 Time to complete registration procedures About 14,8% of the interviewed companies contacted the By sector, companies engaged in State Registration Chamber throughout the past 3 years. The Industry account for the largest share share remained unchanged compared to previous years. (20%) of registrations/amendments to the incorporations documents. Companies in Transport account for the Around one third of them have registered their business; two lowest (9,3%) number of thirds of them have made changes to the incorporation registrations/amendments. documents. By regions, companies located in the North have contacted most often the State Registration Chamber (20,3%). Only 7,4% companies located in the Central region were involved in these processes. Figure 8. Share of enterprises that contacted the State Registration Chamber over the last three years Registration; 5,1% Amendments; 9,7% Did not contact; 85,2% One third of respondents registered or changed the incorporation documents through an intermediary. The average registration time in this case was 8,0 days. Amendments to the incorporation documents via intermediaries took 8,4 days to complete. During the period under review, the registration of a new company with the State Registration Chamber took 4,0 days. Managers spent 4,0 hours on the registration procedures. The above figures cover the timeframe from the moment the documents are filed with the State Registration Chamber up to moment the registration or the amendments are finalized. These figures do not cover the cases where companies have turned to an intermediary. The share of new businesses that had to "register" over the past three years with the Statistics and Sociology Department, the State Tax Service, the National Health Insurance Company and the National Social Insurance House is steadily decreasing. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Registration procedure 24 Cost of Doing Business Table 2. Amount of time to complete the primary registration procedure, by government institution, in the last three years Duration Time Government body Reported, % days Reported, % hours State Registration Chamber 90 4,0 81 4,0 Statistics and Sociology Department 38 1,0 24 1,0 State Tax Service 48 1,0 38 2,0 National Health Insurance Company 38 1,0 24 1,0 National Social Insurance House 38 1,0 24 1,0 The amount of time required to make changes to the registration documents was 3,2 days. The amount of time spent on procedures was 2,7 hours. Table 3. Amount of time to amend the incorporation documents, by government body, in the last three years Duration Time Government body Reported, % days Reported, % hours State Registration Chamber 53 3,2 50 2,7 Department of Statistics and Sociology 25 1,5 23 2,0 State Tax Service 30 1,5 30 3,0 National Health Insurance Company 20 1,0 15 3,0 National Social Insurance House 20 1,0 15 3,0 Most of the time in the registration procedures was spent with the State Registration Chamber. Registering entries with other institutions took 1-3 hours. 2.3 Costs of registration procedures The cost for registration with the State Registration Chamber is around USD 73. An insignificant number of respondents mentioned payments to other institutions. The costs to register or make changes to incorporation documents through intermediaries were USD 191 and USD 150 respectively. In order to ensure the representativeness of the data, the median was used to describe the average. The number of respondents who made unofficial payments to facilitate the registration process is insignificant. 2.4 Perception of procedures Respondents who registered or amended the incorporation documents during the last three years were asked to assess the problems they encountered by scoring from 1 to 5, where 1 - no issues and 5 - major issues. The table below illustrates the assessment results of difficulties faced during the registration of a company. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Registration procedure 25 Cost of Doing Business Table 4. Registration-related problems Period of data collection Problems 2014 2015 2016 2017 Difficult registration procedures 1,7 1,9 2,6 2,4 High costs of the procedure 1,8 2,0 2,3 2,2 Need to prove the physical address of the legal 1,3 2,0 1,9 1,9 entity The need to make unofficial payments 1,2 1,7 2,1 1,9 The data represent the opinion of respondents that have registered or made changes to the incorporation documents over three years: the survey period and two previous years. The share of companies that had rated the procedures with the State Registration Chamber as being complicated has slightly decreased (see Table 4 and Figure 9). Figure 9. Problems faced by economic agents in the registration process over the last three years Unofficial payments -7% 19% 49% Proving the legal address -2% -9% 23% 49% Cost of procedures -2% -12% 26% 35% Difficult procedures -2% -7% 30% 23% -40% -20% 0% 20% 40% 60% 80% 100% Significant problem Critical Insignificant Not difficult 2.5 Summary of analysis In the last three years the average amount of time to register a company with the SRC was 4,0 days. Amendments to the incoporation documents took during this period of time around 3,2 days to complete. The data does not include registrations with other state institutions (see Table 5). Compared to previous periods, the indicator has slightly improved. About one third of respondents have resorted to using intermediaries to carry out registration procedures. Both the time and costs were higher compared to registering in person. Their share has decreased compared to last year. Most companies do not encounter difficulties in the registration process. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Registration procedure 26 Cost of Doing Business Table 5. Duration and amount of time spent to register with the SRC in recent years Survey period 2015 2016 2017 Indicators Time to complete a registration, days 7,1 3,9 4,0 Time to complete amendments to the incorporation documents, 5,0 4,4 3,2 days Time spent on registering, hours 4,8 4,2 4,0 Time spent on amending the incorporation documents, hours 3,9 5,1 2,7 The data represent the opinion of respondents that have registered or made changes to the incorporation documents over three years: during the survey period and two previous years. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Construction 27 Cost of Doing Business 3 Construction 3.1 Regulatory framework Law no. 721-XIII of 2 February 1996 on the Quality of Constructions establishes the legal, technical, economic and organizational framework of activities in Construction carried out by natural and legal persons, their obligations and responsibility regarding the quality in construction. The law sets out regulations on new constructions, upgrading works, modifications, transformations, repairs and strengthening works. According to the amendments introduced by Law no.153 of 30 July 2015, a construction may commence only after the project has been verified by project verifiers certified with relevant authorized institutions. According to Law no. 721-XIII 02 February 1996, two Government Decisions were approved on 25 June 1996: no. 360 on State Supervision of Quality in Constructions and Government Decision no. 361 on Construction Quality Assurance. Decision no. 360 approves three regulations aimed at quality control in constructions:  The regulation establishes ways to exercise government supervision of quality in constructions;  Regulation on State Inspection in Construction;  Regulation on the supervision of the use of public investments in constructions. Decision no. 361 approves the Regulation on verification of projects and carrying out of constructions. It also approves the technical expertise of projects and constructions. The Regulation stipulates the procedures for verification and technical expertise of the project as well as verification techniques of the construction process. The final approval is governed by Regulation on permission to use the construction and related facilities, approved 23 May 1996 by Government Decision no. 285. Through the amendments brought by Government Decision no. 318 of 23 May 2017, procedures for the approval of constructions financed by private financial means have been substantially simplified. The main responsibilities in placing the constructions into service following the final approval are stipulated in the Regulation on monitoring the construction's performance, interventions over time and post-use of construction, approved 24 April 1997 by Government Decision no. 382. Law no. 835 on Urban and Spatial Planning Principles of 17 May 1996 and Law no. 163 of 09 July 2010 on the permission to build a construction define the principles for issuance of the urban planning certificate and the building permit:  The urban planning certificate and the building permit are issued by local public administration authorities.  The urban planning certificate is issued within a maximum of 20 office days. The building permit is issued in 10 office days.  If the local public administration authority remains silent for the time prescribed by law, the urban planning certificate and the building permit will be deemed granted. If the applicant does not receive a written notification on the reasons for the registration rejection and/or for the rejection of the application for building permit/urban planning certificate, the construction may commence. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Construction 28 Cost of Doing Business The Government Decision no.1469 published on 3 March 2017 approved the Regulation on the creation and functioning of the one-stop shop for the issuance of construction permissions. The Regulation sets out in detail the procedure for issuing the urban planning certificate and the building permit. The main provisions contained in the regulation on constructions are as follows:  The use of land plots and design drawings can be performed only after the urban planning certificate has been obtained  Construction works are carried out exclusively according to a plan developed by an authorized natural or legal person. o Construction works can commence only after obtaining the building permit.  The quality of constructions of any use, regardless of their type of ownership and source of funding, also construction works, reconstructions, upgradings and major repairs to existing constructions, manufacture of construction materials and items are subject to government inspections.  The State Inspection in Construction carries out separate quality of construction verifications in all stages of the construction (planning, design, permission, construction progress, performance, post-use, decisive phases and manufacture of building materials and items). 3.2 Costs and time required to obtain construction permits According to the survey, 28,7% of the interviewed companies have moved into new premises in the past three years. About 3,3% of them had built these spaces, 19,3% have repaired or adjusted them, while 77,3% used them without making any changes. The number of companies that have built their premises has been steadily decreasing over the past few years (only six respondents in the current study). Obtaining permits for readjustment of premises took on average 9,0 days. Managers spent about 6,5 hours on this process. Table 6. Time and costs required to obtain permissions to commence reconstruction works Have Amount, reported USD Companies located in Chisinau have Fees to obtain permission 77% 95 moved more often to new or recently repaired spaces (33,9%), compared to Payments for notary services 29% - those located in the North and South (below 10%). Payments to lawyers and intermediaries 14% - About 1/3 of companies in Trade and Transportation expenses 49% 10 Construction moved into new/recently repaired spaces. The lowest share was “Voluntary contributions” 20% - noted in R&D, science, legal, notarial, Unofficial payments 17% - consulting segments (22,4%). After the repairs were completed, the surveyed companies have spent 9 hours to obtain all permissions required to place into service the renovated spaces (final approval). The total amount of time spent on procedures was 14 days. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Construction 29 Cost of Doing Business Table 7. Time and costs required to obtain permissions to place into service the reconstruction works Have Amount, reported USD Formal payments 66% 157 Payments for notary services 17% - Payments to lawyers and intermediaries 14% - Transportation expenses 20% - “Voluntary contributions” 20% - Unofficial payments 14% - Around 24% of the companies that used premises without modifying them had to obtain permissions to use them. 3.3 Perception of procedures Most respondents stated that they did not notice any changes, for good or for worse, in the construction sector. Only 3% said that the procedures were simplified (Figure 10). Figure 10. Perception of changes in procedures governing the use of spaces 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2017 16 81 3 2016 18 79 3 2015 18 72 10 worse no changes better Respondents who started using premises in the last three years were asked to assess the difficulties related to obtaining construction permissions by scoring from 1 to 5, where 1 - no problems and 5 - significant problems. The biggest problem revealed by respondents is the lenghty process to obtain permissions (see Table 8), mentioned by around 57% respondents. Table 8. Problems relating to obtaining permissions for reconstruction and repairs Problems Share Complicated procedures 3,1 Procedures taking too long 3,7 High costs 3,0 The need to make unofficial payments 2,5 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Construction 30 Cost of Doing Business Figure 11. Problems relating to obtaining permissions for construction and repairs Complicated procedures -17% -20% 16% 17% Duration of procedures -34% -23% 13% 5% Cost of procedures -14% -22% 19% 16% Unofficial payments -3% -16% 31% 20% -80% -60% -40% -20% 0% 20% 40% 60% Significant problem Critical Insignificant No problems 3.4 Summary of analysis As a result of the actions taken to facilitate the construction regulation process, including the elimination of redundant permissions, there is a slight decrease in the amount of time required to obtain construction permissions (see Table 9). Table 9. Average amount of time to obtain permissions and final approval, days Survey period 2011 2012 2013 2014 2015 2016 2017 Activity Repairs/renovation 26 38 39 29 31 36 23 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Licensing 31 Cost of Doing Business 4 Licensing 4.1 Regulatory framework The licensing system in Moldova is regulated by framework Law no. 451-XV of 30 July 2001 on Regulation through Licensing of Entrepreneurship, republished in 2005 and substantially amended by Law no. 281 of 14 December 2007. According to Law no. 451/2001, obtaining a license is compulsory in carrying out 48 types of business activities. These licenses are issued by the following licensing bodies:  Public Services Agency (30 activities);  National Bank of Moldova (4 activities);  National Commission of Financial Market (5 activities);  National Energy Regulatory Agency (6 activities);  National Regulatory Agency for Electronic Communications and Information Technology (2 activities);  Broadcasting Coordination Council (1 activity). Law no. 281/2007 of 20 June 2008 introduced the notions of:  tacit approval – a license is deemed granted or renewed if the licensing authority does not notify the applicant within the set time limits;  single window– procedure whereby the licensing authority verifies the authenticity of the information presented by the applicant/licensee without involving him/her in the process. Documents required to obtain a license To obtain a license, the company files a default application with the concerned licensing authority, containing: a) general information on the company; b) type of activity; c) a statement signed by the applicant to comply with the licensing conditions in carrying out the activities for which the license was requested and for the authenticity of the submitted documentation. The following documentation is being attached to the application for license: a) a copy of the certificate of the state registration of the enterprise or organization; b) additional documents as provided by legislative acts regulating the licensed type of activity for which the license is requested. The request of documents other than those contained in this article is prohibited. The data in the documents and the information submitted is verified through the single window procedure. Decision to issue a license or to reject the application for obtaining a license The licensing authority decides on the issue/renewal or rejection of the application based on the application and the documents attached, within a maximum of 5 working days from the registration date. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Licensing 32 Cost of Doing Business If the application for obtaining a license is rejected, the applicant may file a second application after removing the causes that led to rejection. The license shall be deemed granted if the licensing authority does not notify the applicant within the terms provided by law. If the deadlines set out to notify the applicant of the refusal to register his application to obtain a license, or of its rejection or approval expires, the applicant can start to operate the activity s/he requested the license for, provided there was no written notice on the grounds for refusal to register/application rejection. Tacit approval procedure applies to all licenses except for those issued by regulatory authorities in the financial sector (banking and non-banking), in businesses trading firearms, ammunition and explosives. Licensing fees The standard license fee is MDL 3 250. License validity period Most often, licenses are issued for a period of 5 years. In other cases, licenses are issued for one, three or eight years. The validity of licenses for activities that do not fall under the jurisdiction of the Public Services Agency is established by laws governing the respective license activity. Law no. 26 of 13 March 2014 has introduced the e-licensing procedure. This allows the applicant, via a web interface, to send online applications for the issuance/renewal/reissue of a license. The notice of approval or rejection of the application is also received electronically. 4.2 Number of licenses Nearly half (42%) of the surveyed companies had a license at Companies in Construction (77,1%) and the time of questioning. Of these, 14% companies had two or Transport (76,7%) are most often subjected to licensing. The lowest share more licenses. The average number of licenses per company is of companies having a license is noted 1,4. in Trade (27,5%). The share of companies located in The average validity of a license has not changed since last year Chisinau having a license (42,3%) is - 4,0 years. It is useful to note that in 62% of cases the average similar to the results in the rest of the country (42,0%). validity period of a license was 5 years. Also, 41,7% of companies with up to 10 employees have licenses. Companies 4.3 Costs to obtain a license with more than 10 employees are more often required to have a license - 54,2%. The average amount of time to obtain a license is around 11,1 days. Costs amount to USD 179, of which USD 147 is the license issuance fee. Time spent by managers to obtain a license has been relatively short - about 7,5 hours. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Licensing 33 Cost of Doing Business Table 10. Average costs to obtain a license Category of payment Have made Amount, payments, % $ Official payments / license fee 87% 155 Expertise and evaluation 31% 41 Notary services 18% 26 Lawyers and intermediaries 19% 52 Unofficial payments 13% 13 Transportation expenses 35% 10 The series median was used to determine the central trend for costs. The calculations in the Table above were made using the average exchange rate in the last three years. 4.4 Perception of procedures Interviewed companies were asked to assess the changes that occurred in the licensing process over the last year (Figure 12). Figure 12. Perception of changes in the licensing process, % 0% 20% 40% 60% 80% 100% 13 74 13 worse no change better Most respondents believe that the situation has not changed over the past year. Respondents who have carried out licensed activities were asked to assess the difficulties encountered in the process by scoring from 1 to 5, where 1 - no problems and 5 - major problems. The evaluation results are shown in Table 11 and Figure 13. Most often, complaints about the Table 11. Licensing related problems difficulty of the licensing process were made by: Potential difficulties revealed Significance 1 Companies located in Chisinau (15,5%) Complicated regulatory procedures 2,6 2 Companies engaged in R&D, science, legal, notarial and Procedure takes too long 2,7 consulting activities (17,6%). High cost of obtaining a license 2,6 Need to perform unofficial payments 2,2 In 2017 the impact of licensing difficulties has practically not changed. Licensing procedures are perceived as being difficult by about 19% respondents. Over 20% respondents are affected by the high cost of procedures. About 15% respondents are dissatisfied with the need to make unofficial payments. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Licensing 34 Cost of Doing Business Figure 13. Problems related to licensing Complicated procedures -6% -13% 36% 14% Time spent on procedures -7% -14% 30% 15% Cost of procedures -4% -16% 28% 18% Unofficial payments -3% -12% 31% 32% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% Significant problem Critical Insignificant No problems 4.5 Summary of analysis Almost all indicators describing the licensing procedure have not changed compared to last year (Table 12). The share of companies that make unofficial payments has slightly decreased. Costs have changed insignificantly, the relative difference between the values recorded over the past two years being lower than the relative fluctuation in the dollar exchange rate. Table 12. Evolution of costs related to licensing activities 2010 2011 2012 2013 2014 2015 2016 2017 Share of companies subject to licensing 61% 61% 52% 49% 37% 47% 43% 42% Average number of licenses 1,3 1,3 1,3 1,4 1,4 1,4 1,1 1,4 Time to obtain a license, days 22 18 16 18 14 11 12 11 Average cost, $ 270 240 266 294 401 163 172 179 Share of respondents who made 14% 7% 9% 8% 1% 15% 18% 13% unofficial payments, % Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Notifying of the trade activity 35 Cost of Doing Business 5 Notifying of the trade activity 5.1 General regulatory framework Trade activities are regulated by Law no. 231 of 23 September 2010 on Domestic Trade. The amendments brought by Law no. 153 of 1 July 2016 eliminated the authorization requirement of trade activities. Companies under consideration are currently required to submit a notification. The notification to initiate a trade activity is submitted separately for each trading unit In Chisinau, the share of companies engaged in Trade activities is 47,8% and/or place of sale with the local public administration compared to the rest of the country - authority in person or using the online informational resource which reveal a higher share (68,2%). on trading. By sector, the highest share of companies engaged in Trade activities 5.2 Time required to submit a notification are found in Trade (77%) and Industry (65%). More than half (54%) of the companies in the Republic of Companies operating trade activities that applied for a notification with LPA least Moldova work under the Law on Domestic Trade. Three frequently: quarters of them (76%) have filed notifications with LPA to  By region, companies located carry out a trade activity. in Chisinau (71,4%)  Based on CMEA, companies The amount of time to prepare and submit a notification was in Transport (50%)  By size of business, 6,0 days. Managers spent around 4,6 hours for this purpose. companies with more than 10 employees (63,8%) 5.3 Perception of the notification procedure Respondent companies that submitted a notification with local authorities were asked to assess the process compared to the previous year, when they were required to obtain authorizations. The answers are presented in Figure 14. Figure 14. How managers perceive the transition from authorizations to notifications 0% 20% 40% 60% 80% 100% 5% 58% 37% worse no change better Just over half of respondents said that they did not “feel” the improvements brought by Law no 153 of 01 July 2016. Around 37% said that the notification process is less complicated than obtaining authorizations. Even if not provided for in the legislation, upon filing a notification, authorities still request the same documentation that was necessary to obtain a trade authorization: Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Notifying of the trade activity 36 Cost of Doing Business Table 13. Documents required at the time of notification Requested documents Share of respondents, % Total Chișinău North Centre South Property act / contract with the lessor 79 73 100 67 86 Regsitration certificate 93 88 100 96 100 Excerpt from the SRC 90 86 98 93 100 Copy of administrator documentation 82 74 96 85 100 The „old” authorization 65 48 89 85 100 Design of commercial spaces 73 62 91 78 100 Other documentation 66 52 89 70 96 As can be seen in the above table, the worst situation is noted in the north and south regions, where managers have had to travel to the "raion" in order to submit all kinds of documents requested by local decision-makers. 5.4 Summary of analysis Over the past years, the procedures regulating the trade activities have improved. This was particularly possible with the elimination of the requirement to obtain authorizations. More than one-third of respondents believe that the improvements have simplified the trade-related regulations. Among the most important benefits were mentioned:  the notification does not need to be “renewed” along with the extension of the lease contract;  the company is no longer affected by the delay due to the examination of submitted documents, since the trade activity can commence once the notification has been made;  for most companies, the requirement to obtain sanitary permits has been eliminated;  the requirements to obtain approvals from the fire department and the sector praeture (in the municipality of Chișinău) have been eliminated. However, the efforts of central authorities to simplify the trade activity were in most cases sabotaged by local public authorities, which, contrary to the current legislation, continued to request the same documents that were necessary to obtain a trade authorization. Thus, the effect of the improvements mentioned above has been diminished by local bureaucracy. This is also confirmed by the 63% respondents who did not notice any improvement, with some of them mentioning that the situation in this area has actually worsened Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Trading across borders 37 Cost of Doing Business 6 Trading across borders 6.1 Regulatory framework General provisions on customs procedures are contained in the Customs Code of the Republic of Moldova, approved by Law no. 1149-XIV of 20 July 2000, reissued on 1 January 2007. All import and export activities require their prior registration with the Customs Service in the Republic of Moldova. The Customs Code establishes the rights and obligations of the customs broker, as well as the situations where his license may be withdrawn. Repatriation of funds is also covered by import-export operations regulatory area. Even if not directly related to customs procedures, it is a requirement imposed by Law, which affects the import-export activity. Pursuant to Law no. 1466-XIII of 29 January 1998 on Regulation of Repatriation of Money Funds, Goods and Services Originating from foreign Economic Transactions, the notion of "repatriation of money funds” is the collection of money from non-resident businesses, within a set time limit, of the money funds related to exports of goods, provision of services/works to non-residents. The term also covers other foreign operations and transactions in accounts opened with authorized banks in the Republic of Moldova. The amount of funds must be shown in the customs declaration, while the costs of services and works - in the confirming documents (contracts, deeds of works performed or services rendered, invoice). Companies that sell predominantly abroad face another procedure – the recovery of VAT. The refund of value added tax is regulated by Government Decision no. 93 of 01 February 2013. The company has the right to choose the method of repayment: offset against other tax liabilities and/or money refund. The tax authority is obliged to adopt the decision on the procedure for the refund, relying on the risk criteria stipulated in the Decision. The decision must be taken within 3 working days from the date of the application for refund was filed. The state tax authority initiates the thematic inspection as soon as the taxable subject files an application. Applicants who meet the following four conditions are exempt from this inspection: 1) the subject of taxation has been active for at least two years; 2) the subject of taxation was granted refunding of VAT previously at least twice; 3) the last thematic inspection on the VAT refund revealed that the amount of refunded VAT, confirmed by the tax authority, is equal to the amount declared by the payer; 4) during the last tax inspection the amount of taxes, duties, compulsory state social insurance contributions and compulsory health insurance premiums did not exceed 1% of the total deliveries made during the verified fiscal periods. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Trading across borders 38 Cost of Doing Business The VAT is refunded within 45 days out of which 30 days are spent on verifications and decision making and 7 days - on the actual refund. 6.2 Import transactions About 15% respondents carried out import operations over the past three years. On average, an importer carries out 11,3 transactions per year. In 2017 the share of importing companies has declined, whereas the number of transactions per company has increased. 6.2.1 Certification costs of imported goods About 34% importers had to obtain certificates for imported The highest shares of companies that goods compliant with the standards in the Republic of carry out import operations are found in Moldova. In 78% cases, companies that had to obtain Chisinau (17,2%). In the remaining regions importing companies account certificates of compliance with the standards in the Republic of for 8,5%. Moldova had already been certified under the requirements of The share of importing companies is the country of origin. higher (30%) among companies with more than 10 employees compared to the share of importers per total The certification process of imported goods took 5,7 days. The companies employing up to 10 amount of time spent to obtain the certificate was 5,1 hours. employees (12%). Costs amounted to USD 137. About 16% respondents have By type of activity, the largest share of importers are found in Trade (23,8%) paid bribes to obtain a certificate. and Construction (17,1%). R&D, science, legal, notarial and consultancy A quarter of respondents that had to obtain certificates of segments are zero rated in this aspect. compliance mentioned cases where their goods have been retained by customs because they lacked certificates of compliance. One third of respondents obtained the certificate some time later. Figure 15 Handling situations of lacking certificate of compliance Do not know; 9% Goods retained by customs; 25% Had the certificate upon arrival of goods; 31% Agreed to submit later; 34% Around 40% importers had to obtain sanitary authorizations for imported goods. Sanitary certificates were issued in 5,4 days. Companies spent 5,4 hours to obtain the certificate. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Trading across borders 39 Cost of Doing Business 6.2.2 Customs costs In the last three years, customs compliance took 3,1 days to complete. Taxes paid for customs procedures (excluding customs tax and excise duties) amounted to about USD 307. About 5% said they paid bribes to facilitate customs procedures. Table 14. Costs and time to complete import customs procedures Type of payment Have made Average payments, % amount, $ Days 100 3,2 Official payments, $ 100 307 Penalties 6 - Unofficial payments 5 - 6.2.3 Perception of import procedures Companies practically did not notice any improvements in the import conditions (see Figure 16). About 28% respondents said that procedures have become more difficult this year and only 5% claimed the opposite. Figure 16. Perception of changes in import procedures 0% 20% 40% 60% 80% 100% 28% 67% 6% worse no change better The problem of the degree of indicative price of goods has shown an upward trend over the past three years, reaching an alarming level. Table 15. Most significant problems on import Survey period Elements 2013 2014 2015 2016 2017 Difficulties related to obtaining permissions and licenses 2,4 1,6 2,1 2,6 2,8 Difficulties with certification 2,7 1,6 2,3 2,7 2,7 Customs procedures 3,0 1,8 2,3 3,2 3,1 High taiffs on customs procedures 3,3 2,3 2,6 3,3 3,0 Unequal terms for importers 2,7 1,9 2,4 3,1 2,9 Corruption in customs 2,9 2,0 2,3 2,9 2,7 Indicative prices for goods 2,7 1,8 2,4 3,1 3,3 Phytosanitary certification 1,9 1,4 1,9 2,1 2,4 Note: difficulties were scored from 1 to 5, where 1 - no difficulties and 5 - significant difficulties. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Trading across borders 40 Cost of Doing Business Nearly every second respondent was dissatisfied with the practice of customs inspectors in using indicative prices for the imported goods. One third of respondents identified the corruption in customs as a serious problem. About 40% consider that customs procedures take too long. Figure 17. Perception of difficulties related to import transactions Licenses and permissions -10% -22% 19% 24% Certification -7% -21% 26% 20% Clearance -18% -22% 17% 10% High cost of procedures -15% -16% 19% 16% Unequal conditions -10% -17% 23% 15% Corruption -6% -26% 14% 24% Indicative prices -24% -23% 18% 10% Phytosanitary certification -3% -16% 19% 34% -60% -40% -20% 0% 20% 40% 60% Significant problem Critical Insignificant No difficulties 6.3 Export transactions Only 4,9% of respondents carried out export operations in the past three years, with an average 16 operations per year. An export customs procedure takes 2,1 days to complete. Companies spent USD 105 to complete the customs process. The median was used to estimate the figure. Figure 18. Perception of changes in export procedures 0% 20% 40% 60% 80% 100% 29% 52% 19% worse no change better Unlike last year, about 19% of respondents mentioned that export procedures have improved, although 29% claimed the opposite. By sector of activity, the largest share of 6.4 Summary of analysis the exporting companies is recorded in Industry (10%). The amount of time spent on customs procedures has The share of exporters in companies slightly increased over the last year (see Table 16). with up to 10 employees is 4,3% and 8,2% among companies with more than Assessing the monthly performance of the customs service 10 employees. according to the value of the fees paid by the companies has led to a negative phenomenon for the recent years. Under these circumstances, where the value of imports does not Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Trading across borders 41 Cost of Doing Business depend on the performance of customs inspectors and the customs tariffs value is set by the Parliament, the only leverage with immediate visible effect to increase the performance is the unjustified increase of prices, which further influences the customs duties . Table 16. Changes in import-export procedures and regulations Indicators Survey period 2011 2012 2013 2014 2015 2016 2017 Time spent on customs compliance on import, 1,9 2,7 2,5 2,0 1,5 2,7 3,1 days per transaction Cost of customs compliance on import, $ per 144 152 158 261 136 287 307 transaction Time spent on customs compliance on export, 1,6 1,7 2,0 2,0 2,1 1,9 2,1 days per transaction Cost of customs compliance on export, $ per 85 89 152 213 37 172 105 transaction Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Certification of goods 42 Cost of Doing Business 7 Certification of goods 7.1 Regulatory framework Certification of goods is governed by the following laws:  Law no. 20 of 04 March 2016 on Standardization;  Law no. 420-XVI of 22 December 2006 on Technical regulation activity, republished 31 March 2017;  Law No. 235 of 1 December 2011 on Accreditation and Compliance assessment activities;  Law No. 78-XV of 18 March 2004 on Food goods. The Standards Institute in Moldova is the national institution responsible for standardization in the Republic of Moldova. The Institute creates technical standardization committees. These committees develop moldovan standards which are approved by the Standards Institute in Moldova. Moldovan standards are approved or adopted through decision by the Standards Institute in Moldova. The decision to apply national standards is voluntary. Only then does a standard become mandatory (through a legislative act which makes direct reference to this standard) when public concerns such as protection of life and health, security of people, environment protection and consumers’ interests make this action necessary. Application of standards is also mandatory for parties that report compliance with a certain standard through a contract, trademark, declaration, certificate or any other form. Law no. 235 of 01 December 2011 sets out the regulated areas. In the regulated areas covered by the EU harmonization legislation, national technical regulations transpose this legislation. 7.2 Certification costs Only 9% of the surveyed companies have certified goods. By region, the smallest (5,9%) share of Businesses have two options in the certification process: 1) companies that are required to certify their goods are found in the Central certify individual batches of goods or 2) certify mass region. The largest share is accounted manufactured goods. In the first situation the certificate is for by companies located in the North (12,5%). granted for a certain quantity of goods, in the second - for a As expected, by type of actvity, certain period. Around 60% companies certify individual companies operating in Industry are batches of goods. The other 40% certify mass manufactured most familiar with certification of goods (25,7%). goods. On average, every fourth company with more than 50 employees and every 12th company with up to 10 employees certify their goods. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Certification of goods 43 Cost of Doing Business Figure 19 Share of companies that certify goods Do not know; 6% Batches of goods; 5% Mass production; 4% Do not certify; 85% The certification of batch goods takes on average 3 days. Preparation and sumbission of necessary documents take an average 4,5 hours. The certification of mass manufactured goods takes around 10 days, time spent - 8 hours. The certification costs of mass-manufactured goods are about USD 122, certification of individual batches of goods cost less - USD 106. A company certifies batches of goods an average 1,5 times a year. Mass production is certified approximately once a year. The average validity period for mass production certificates is 12 months. The values obtained in this chapter have a high degree of dispersion. The central tendency for costs was determined based on the median, not the arithmetic average. 7.3 Perception of certification procedures Over the past year respondents noted minor changes in the certification conditions. Figure 20. Changes in the certification process 0% 20% 40% 60% 80% 100% 23% 64% 14% worse no change better Table 17. Problems faced in the certification process Problems Share Certification procedures take too long 2,9 High tariffs to obtain certificates 2,4 High requirements for company's products 2,5 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Certification of goods 44 Cost of Doing Business More than a quarter of respondents consider that certification procedures take too long to complete. About 20% of respondents encounter difficulties in meeting the requirements of official standards. Figure 21. Exporters’ perception of difficulties related to the certification procedures Lengthy procedures to obtain certificates -15% -11% 26% 13% High tariffs to obtain certificates -6% -4% 26% 22% High requirements for company products -13% -7% 20% 33% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% Significant problem Critical Insignificant Not difficult 7.4 Summary of analysis Only 9% of respondents were required to certify their goods, their share decreasing compared to the previous years. In 2017 the certification of individual batches of goods took less time (see Table 18). Due to the small number of observations and the high data dispersion, a cost trend could not be produced. Table 18. Changes in the process of certification of goods Survey period Indicators 2011 2012 2013 2015 2016 2017 Time spent to obtain a certificate for mass 13,0 16,6 11,7 13,2 10,3 10,0 manufactured goods, days Costs to obtain a certificate for mass 158 191 158 63 84 122 manufactured goods, $ Time spent to obtain a certificate for individual 11,7 12,1 10,3 8,6 7,6 3,0 batches of goods, days Cost to obtain a certificate for individual batches 83 145 124 57 46 106 of goods, $ Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Sanitary operating authorizations 45 Cost of Doing Business 8 Sanitary operating authorizations 8.1 Regulatory framework The state sanitary and epidemiological regulation is governed by Law no. 10-XVI of 03 February 2009 on State supervision of public health. Businesses carrying out activities that impact public health are subject to sanitary operating authorization. Law no. 153 of 01 July 2016 establishes that trading units obtain an operating sanitary authorization if they carry out activities set out in Annex no. 4 to Law 231 of 23 September 2010 on Domestic trade. 8.2 Obtaining sanitary operating authorizations Around 39% of respondents had to obtain sanitary operating authorizations. Companies operating in Trade (49,8%) On average, companies apply for sanitary operating and Industry (47,1%) are most often authorizations 1,2 times a year. The process takes 6,7 days. required to obtain sanitary operating authorizations. On the other hand, only Related costs are about USD 75. Gathering and submitting the 20% of companies in Construction and necessary documents to competent bodies take on average 5,1 21% companies in Transport have this permissive document. hours. By region, only 31,7% of the companies in Chisinau have sanitary operating authorizations, compared to the 56,8% share in the rest of the country. Table 19. Average expenses incurred by respondents to obtain a sanitary authorization Survey period Have made payments, % Amount, $ Indicators 2014 2015 2016 2017 2014 2015 2016 2017 Official payments 92 88 93 93 89 47 69 68 Payments to lawyers and intermediaries 4 13 9 9 44 34 13 46 Transport expenses 47 48 34 37 22 19 11 11 “Voluntary contributions” 11 13 9 9 35 17 12 29 Unofficial payments 11 17 9 10 35 16 11 11 Total costs, $ - - - - 102 60 71 75 8.3 Perception of the process to obtain a sanitary operating authorization As shown in the table below and the above indicators, in the last year no substantial improvements were observed in the process of obtaining sanitary authorizations. However, it is important to note that the number of respondents who have noticed improvements is higher compared to the share of respondents who indicated that the situation has worsened. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Sanitary operating authorizations 46 Cost of Doing Business Figure 22. Changes in the process of obtaining sanitary authorizations 0% 20% 40% 60% 80% 100% 9% 77% 14% worse no change better According to the data in Table 20 and Figure 23, companies do not encounter major difficulties in obtaining sanitary authorizations. The situation is similar to last year. Table 20. Problems faced in the process of obtaining sanitary authorizations Problems Share Complicated regulatory procedures 2.1 Long time to complete the process 2.3 High cost to obtain sanitary certificates 2.1 Unofficial payments 1.8 Only 10% of respondents rated the process as being difficult, while 15% think that the process of obtaining sanitary authorizations takes too long. The share of companies experiencing problems has increased slightly compared to last year. Figure 23. Problems encountered in the process of obtaining sanitary authorizations Difficulty of procedure -3% -7% 43% 31% Time of procedure -6% -9% 40% 28% Cost of procedure -4% -8% 40% 31% Unofficial payments -1% -8% 27% 54% -20% 0% 20% 40% 60% 80% 100% Significant problem Critical Insignificant Not a problem 8.4 Summary of analysis Both the amount of time and costs to obtain a sanitary authorization vary without providing a trend (see Table 21). Table 21. Changes in the process of obtaining a sanitary authorizations Indicators Survey period 2011 2012 2013 2014 2015 2016 2017 Time for obtaining a sanitary authorization, days 8 8 6 10 9 7 7 Cost of obtaining a sanitary authorization, $ 67 94 71 102 60 71 75 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Sanitary certification of goods 47 Cost of Doing Business 9 Sanitary certification of goods 9.1 Regulatory framework The state sanitary and epidemiological regulation is governed by Law no. 10-XVI of 03 February 2009 on Government supervision of public health. Sanitary standards that set out human security and safety criteria for environmental and occupational factors, of goods and services, of the requirements to ensure favourable conditions for life and sanitary regulations are regulated by health regulations developed by the Ministry of Health and approved by the Government. The law establishes the compulsory adjustment of these regulations to the EU requirements. Goods and services are subject to the following forms of sanitary authorization: a) Notification: notifying the authority responsible for supervision of public health on the marketing of a new product or service and on its features relevant to public health; b) Sanitary approval: required for the following activities, document projects, goods and services:  allocation of land for construction/reconstruction;  elaboration of urban certificates for planning, in cases set out exclusively in the current legislation;  final approval of built/rebuilt premises financed from state or local budgets;  standards of goods and services;  production technologies. c) State registration: compulsory with goods and services potentially hazardous to human health and life - chemical, radioactive and biological substances, new food products, drugs, microbiological diagnostic systems, diagnostics, nutrient media, chemical reagents, biodistructive substances; d) Sanitary certification: verifying if batches of goods comply with applicable health regulations. Sanitary certification implies laboratory investigations of the batch of goods. Sanitary authorizations of goods and services are performed on request, submitted by interested legal or natural persons, also based on the sanitary expertise of the documents, goods, services and/or activities. Sanitary authorizations imply a sanitary expertise charged as per the list and tariffs for public health services approved by the Government. Sanitary opinions, registration certificates, sanitary certificates and sanitary authorizations are issued free of charge. Trading of goods and services subject to sanitary authorization under the applicable laws, but yet unauthorized, is prohibited. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Sanitary certification of goods 48 Cost of Doing Business 9.2 Obtaining sanitary certificates A relatively small number of respondents (8%) had to obtain Companies operating in Industry are most often required to undergo sanitary sanitary certificates for their marketed goods. certification - 12,9% (of these - 31,2% are companies in the Food Industry). Two thirds of respondents obtain certificates once a year. On By region, companies located in the average, companies apply for a certificate 1,9 times a year. North (1,6%) and Centre (4,4%) need a sanitary certificate least often. A higher A sanitary certificate is obtained within 4,9 days from the share is noted in Chisinau (7,7%) and application date. Gathering and submitting the necessary much higher in the South (20,5%). documents to competent bodies took an average 6,0 hours. Table 22. Average costs incurred by respondent companies to obtain a sanitary certificate Indicators Have made Amount, $ payments, % Official payments 79 59 Payments to lawyers and intermediaries 25 19 Transport expenses 40 17 “Voluntary contributions” 10 - Unofficial payments 19 11 Total costs, $ - 60,3 The average amount of unofficial payments and of payments to lawyers and intermediaries was determined by median measure. Costs of obtaining a certificate is about USD 60. Every fifth respondent admitted to having paid bribes. 9.3 Perception of procedure to obtain a sanitary certificate In the last year there have been no major changes in the process of obtaining sanitary certificates. More than three quarters of respondents believe that procedures and conditions related to sanitary certification have not changed. Figure 24. Changes in the process of obtaining sanitary certificates 0% 20% 40% 60% 80% 100% 13% 76% 11% worse no change better According to the data contained in the Table 20, the process of obtaining a sanitary certificate does not pose significant problems for companies. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Sanitary certification of goods 49 Cost of Doing Business Table 23. Problems faced in obtaining sanitary authorizations Problems Share Complicated regulatory procedures 2.5 Long time to complete the process 2.3 High cost to obtain sanitary certificates 2.4 Unofficial payments 2.2 As shown in Figure 25, only 13% of respondents said that the process of obtaining sanitary certificates is difficult. About 18% think that the cost of obtaining certificates is too high. Figure 25. Problems encountered in obtaining sanitary certificates Difficult procedure -2% -11% 36% 16% Duration of procedure -2% -11% 41% 21% Cost of procedure -18% 27% 25% Unofficial payments -12% 26% 35% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% Significant problem Ciritical Insignificant Not difficult 9.4 Summary of analysis Both the time and costs to obtain a sanitary certificate have virtually not changed compared to last year (see Table 24). Table 24. Changes in procedures for obtaining sanitary certificates Indicators Survey period 2016 2017 Time to obtain a sanitary certificate, days 5,6 4,9 Time spent to obtain a sanitary certificate, hours 5,9 6,0 Costs to obtain a sanitary certificate, $ 59 60 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Phytosanitary certification 50 Cost of Doing Business 10 Phytosanitary certification 10.1 Regulatory framework Phytosanitary regulation is regulated by Law no. 228 of 23 September 2010 on Plant protection and phytosanitary quarantine. If the importing countries impose such a requirement, the phytosanitary control body shall issue phytosanitary certificates. The phytosanitary certificate shall be issued to the exporter by the subdivision of the phytosanitary inspection body under whose jurisdiction the goods subject to quarantine are produced. In order to obtain the phytosanitary certificate, the exporter shall submit, at least 48 hours prior to shipment, a series of documents: a) an application requesting a phytosanitary certificate; b) certificate on the use of phytosanitary products, at the request of the importing country; c) phytosanitary certificate of the country of origin; d) copy of fiscal invoice or cargo shipping invoice. The validity of phytosanitary certificate is 14 days from the issue date. If the inspection establishes that phytosanitary requirements have been observed, instead of phytosanitary certificate, a phytosanitary passport is issued to ensure the free movement of imported plants and plant products. 10.2 Obtaining phytosanitary certificates About 6,2% of respondents had to obtain phytosanitary certificates. On average, businesses pass this procedure 2,5 times a year. Phytosanitary certification is required for certain companies in Industry (10%) Phytosanitary certificate are obtained in 2 days. Gathering and and Trade (8,3%). Its share in the submitting the necessary documents to competent bodies takes remaining sectors is insignificant. an average 4 hours. The share of companies with more than 10 employees that have a phytosanitary certificate (10,3%) is higher compared The above average data was calculated based on the median. to companies with up to 10 employees (5,5%). The cost to obtain a phytosanitary certificate is about USD 34. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Phytosanitary certification 51 Cost of Doing Business Table 25. Average costs incurred by respondents to obtain a phytosanitary certificate Have made Amount, payments, % $ Official payments 69 39 Payments to lawyers and intermediaries 8 - Transportation costs 44 11 “Voluntary contributions” 18 11 Unofficial payments 10 - Total costs, USD - 34 10.3 Perception of procedure to obtain a phytosanitary certificate The share of respondents who noticed certain improvements in the process of obtaining phytosanitary certificates is higher compared to the share of companies that saw the situation worsen. Figure 26. Changes in the process of obtaining phytosanitary certificates 0% 20% 40% 60% 80% 100% 13% 68% 18% worse no change better Overall, this segment does not generate significant problems for companies. However, one in five respondents encountered difficulties in obtaining the phytosanitary certificates. About 19% are dissatisfied with the long process of obtaining the certificates. Table 26. Problems faced during the process of obtaining phytosanitary certificates Problems Share Complicated regulatory procedures 2,8 The process takes too long 2,7 High costs to obtain phytosanitary certificates 2,1 Unofficial payments 1,9 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Phytosanitary certification 52 Cost of Doing Business Figure 27. Problems faced in the process of obtaining phytosanitary certificates Difficult procedures -8% -13% 18% 16% Duration of procedures -11% -8% 24% 16% Cost of procedures -8% 42% 26% Unofficial payments -3% 34% 37% -40% -20% 0% 20% 40% 60% 80% Significant problem Critical Insignificant Not difficult 10.4 Summary of analysis Both the time and cost of obtaining phytosanitary certificates remained at the previous year level. Table 27. Changes in the procedures to obtain phytosanitary certificates Indicators Survey period 2015 2016 2017 Time to obtain a phytosanitary certificate, days 2,0 2,0 2,0 Time spent to obtain a phytosanitary certificate, hours 3,5 5,0 4,0 Costs to obtain a phytosanitary certificate, $ 35 37 34 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Inspections 53 Cost of Doing Business 11 Inspections 11.1 Regulatory framework According to Law no. 131 of 08 June 2012 on State supervision of entrepreneurial activity, substantially amended by Law no. 230 of 23 September 2016, "the only authorities/public institutions entitled to initiate and carry out an inspection are set out in the Annex to this Law, within appropriate limits." The law expressly prohibits "overlapping the scope of inspection by inspection bodies." The inspecting authority does not have the right to initiate an inspection if it has the necessary information ascertaining the law compliance or if the information can be obtained from other inspection and/or supervision bodies, from official records or any other available sources, as well as if all the other means to establish the business entity’s law compliance were exhausted. The authorized institution does not have the right to inspect a period longer than 3 years of a business activity preceding the start date of the inspection. Scheduled inspections carried out during the first 3 years from the state registration date of the person engaged in entrepreneurial activities have advisory status and will not result in sanctions or restrictive measures, except for cases where very serious violations of the law are identified. A single inspection body does not have the right to carry out scheduled inspections more than once in a calendar year of the same person or object if the person owns several distinct objects, placed separately from the headquarters and other objects, unless a higher frequency of inspections is required in accordance with the inspection-scheduling methodology based on risk assessments, applied to the concerned areas subject to inspections. 11.2 Number and duration of inspections As a result of the moratorium on inspections carried out by government authorities, the average number of visits to a company in 2016 has decreased almost twice, from 3,8 to 2,0 Share of companies subject to State Tax visits per company per year. These numbers do no include the Service inspection: checks by Police on vehicles. Following the lifting of  By region, only 38% companies moratorium, the number of inspections has increased to 2,9 located in Chisinau undergo inspections, compared to 71,3% in visits per year. the rest of the country.  By sectors, the highest share is The overall amount of time spent by inspectors with a reported in Industry (63%) and company has increased from 5,0 to 11,5 hours per year, largely Transport (57%).  Companies with more than 10 due to the increase in the amount of time of inspections carried employees (58,8%) are inspected out by the State Tax Service. The average number and duration more frequently than companies with up to 10 employees (45,2%). of inspections, by particular inspecting body, are shown in Table 26. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Inspections 54 Cost of Doing Business Table 28. Average number and duration of inspections Survey period Share of inspected Frequency, visits Number of days per companies, % per year visit State bodies 2015 2016 2017 2015 2016 2017 2015 2016 2017 State Tax Service 51 32 47 1,4 1,5 1,4 0,5 0,37 1,03 Fire department (emergency situations) 35 24 38 1,2 1,2 1,3 0,2 0,24 0,33 Sanitary Epidemiological Service 22 14 15 1,3 1,2 1,5 0,2 0,30 0,46 Police 19 12 12 1,5 1,5 1,7 0,2 0,20 0,24 Traffic police 18 8 11 5,0 2,7 2,5 0,1 0,14 - Price monitoring bodies 11 4 4 1,1 1,4 1,3 0,3 0,38 0,31 Standard monitoring bodies 13 3 4 1,1 1,3 1,3 0,2 0,40 0,41 Environmental Inspection Bodies 16 3 13 1,3 1,4 1,2 0,2 0,26 0,35 Licensing bodies 11 7 8 1,3 1,5 1,3 0,1 0,41 0,31 National Anticorruption Center 8 1 3 1,1 1,0 1,0 0,2 0,31 0,71 Other ministries and departments 12 13 7 1,3 1,8 1,6 0,1 0,41 0,82 Local authorities 17 12 18 1,2 1,6 1,2 0,1 0,23 0,32 Labour inspection 32 15 24 1,3 1,3 1,3 0,4 0,29 0,53 35% of respondents who own a means of transport claimed that the Traffic Police have stopped their vehicle without any legal reason and proceeded to verify the legality of documents or cargo. Their share has slightly decreased compared to last year. 11.3 Expenses incurred folowing the inspections Share of companies inspected by the Fire Department: Most of the companies are fined by the State Tax Service -  The indicator for Chisinau (28,2%) about 18% per total companies or nearly 40% of the inspected and Centre (30,9%) is relatively companies. Their share has increased compared to last year. At moderate compared to North and South regions, where the share of the same time, the share of companies that bribed tax companies subjected to inspections inspectors decreased from 22 to 6%. surpasses 80%.  By sector, companies operating in Slightly less than 40% of the inspected companies paid fines Industry (58,6%) and Trade (40,8%) are inspected most after police visits. More than 18% of those inspected bribed frequently. the police. Companies verified by Labour Inspection: Other institutions with a high share of fines are Labour  In Chisinau (18,1%) and Centre Inspection, Local and Central Public Authorities, National (27,9%) the number of inspected Anticorruption Center and the Sanitary-Epidemiological companies is lower compared to North and South regions - with Service. 45,3 and 52,3% shares respectively. Most often bribes are paid following the inspections by local  Companies in Costruction (40%) and central public authorities. and Industry (28,6%) are verified by inspectors most frequently. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Inspections 55 Cost of Doing Business Table 29. Share of companies that incurred payments following the inspections in the last year Fines, % Unofficial payments, % Share per Share per Share per Share per total inspected total inspected companies companies Share per inspected companies Survey period 2016 2017 2016 2017 2016 2017 2016 2017 State Tax Service 10 18,4 32 39,1 7 2,7 22 5,7 Fire department (emergency situations) 3 4,9 13 12,9 3 2,5 12 6,6 Sanitary Epidemiological Service 3 2,5 20 16,7 3 1,0 18 6,7 Police 1 4,4 11 36,7 1 2,2 11 18,3 Traffic police (patrol) 4 4,3 44 39,1 4 1,9 26 17,3 Price monitoring bodies 0 0,5 3 12,5 0 0,2 0 5,0 Standard monitoring bodies 0 0,3 4 7,5 0 0,2 0 5,0 Environmental inspection bodies 0 1,4 4 10,8 0 0,5 0 3,8 Licensing bodies 1 0,5 9 6,3 1 1,3 18 16,3 National Anticorruption Center 1 0,5 25 16,7 0 0,3 8 10,0 Other ministries and departments 3 2,1 22 30,0 5 1,6 37 22,9 Local authorities 2 3,5 16 19,4 5 4,4 33 24,4 Labour inspection 3 4,4 16 18,3 3 4,4 20 18,3 The share of companies paying bribes to traffic police, the sanitary-epidemiological service, the fire department, and the tax inspectors has declined. 11.4 Perception of number of inspections and difficulties Although the average number of inspections increased compared to 2016, about 28% of respondents said they received inspections less frequently. About 15% of companies said the number of inspections was higher compared to the previous year. Figure 28. Changes in the number of inspections 0% 20% 40% 60% 80% 100% 15% 57% 28% more no changes fewer Only 9% respondents believe that companies are treated equally by the law. Their share has slightly increased compared to last year. Half of respondents who provided an answer or 42% of the total believe that the equality of companies before the law is only partially secured. Around 38% respondents believe that the law is applied selectively at all times, depending on the attitude of public persons. Another 27% partially agree with that statement (see Table 30). Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Inspections 56 Cost of Doing Business Table 30. Impartiality of public servants Yes Partly No Do not know All companies are treated equally by the law 9% 42% 34% 15% The law is applied selectively 38% 27% 15% 19% Nearly one third of respondents stated that most visits were "scheduled and legally justified". The share of companies who mentioned various subjective motives - obtaining bribes, economic pressure, political motives - oscillates between 10 and 16%. Table 31. Purposes of the inspection visits Purpose 2012 2013 2014 2015 2016 2017 Inspections were justified, previously announced 3,4 3,0 2,1 2,7 2,2 2,7 Investigation of violations 2,2 2,2 1,4 2,0 2,2 2,4 Soliciting bribes and "voluntary contributions" 2,3 2,1 1,4 2,2 2,2 2,2 Attempts to put pressure on management to take economic 1,5 1,6 1,2 1,7 2,0 2,0 decisions Abuse of power for unfair competition 1,6 1,5 1,2 1,9 2,0 2,0 Political reasons 1,3 1,4 1,1 1,8 1,9 2,0 Other subjective reasons 1,7 1,7 1,1 1,8 2,0 2,0 Over the past three years, the share of companies verrified for the purpose of resolving various violations has increased. Unfortunately, the number of companies verified for political reasons is slowly but steadily increasing. Most companies believe that state Perception of changes in the number of inspections compared to inspection procedures have not changed last year: substantially over the past year (see  By region, the number of companies in Chisinau (31,3%) and Figure 29). Centre (41,3%) that saw the number of inspections decreasing is higher compared to the number of companies that say the opposite - 14,9% in Chisinau and 20,6% in the Central region). Only 8,1% of the companies in the North and 2,4% in the South noted a decrease in the number of inspections.  The largest share of companies that noticed a decline in inspections is accounted for by companies working in R&D, science, legal system, notarial and consulting services (48,2%) and Trade (31,3%). Figure 29. Changes in the perception of state inspection procedures 0% 20% 40% 60% 80% 100% 10% 77% 13% worse no changes better Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Inspections 57 Cost of Doing Business 11.5 Summary of analysis Over the past year, the number of inspections has increased, from 2,0 to 2,9 visits per company. The time spent by inspectors with a company has increased from 5 to 11,5 hours per year. Table 32. How inspections have changed Survey period 2009 2010 2011 2012 2013 2014 2015 2016 2017 Indicators Average number of inspections per 8,2 7,9 4,2 5,2 3,6 6,5 3,8 2,0 2,9 company Number of days per year with a 10 15 6,5 6,3 4,7 4,5 0,95 0,63 1,44 company Table 33. Changes in the share of inspected companies, % per total surveyed companies Survey period 2012 2013 2014 2015 2016 2017 Inspection bodies State Tax Service 74 54 58 51 32 47 Fire department (emergency situations) 53 42 56 35 24 38 Sanitary and epidemiologic service 31 18 48 22 14 15 Police 31 22 41 19 12 12 Traffic police 23 20 10 18 8 11 Price monitoring bodies 11 8 5 11 4 4 Standard monitoring bodies 16 10 18 13 3 4 Environment inspection bodies 17 13 22 16 3 13 Licensing bodies 15 9 12 11 7 8 National Anticorruption Center 22 11 8 8 1 3 Other ministries and departments 13 19 10 12 13 7 Local authorities 27 24 20 17 12 18 Labour inspection 54 48 40 32 15 24 Following the lifting of the moratorium on inspections (established in 2016), their number has increased, but not with the same frequency recorded in previous years. Almost all state institutions increased their frequency of inspections, with the highest relative increases being observed for the fire department (over 70%), labour inspection (over 50% increase), environment inspection bodies (a threefold increase in number). Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Inspections 58 Cost of Doing Business Table 34. Frequency of inspections (calculated only for companies inspected by respective authority) Survey period 2012 2013 2014 2015 2016 2017 Inspection bodies State Tax Service 1,7 1,4 1,9 1,4 1,5 1,4 Fire department (emergency situations) 1,3 1,2 1,4 1,2 1,2 1,3 Sanitary epidemiologic services 1,6 1,6 1,9 1,3 1,2 1,5 Police 1,7 1,5 3,9 1,5 1,5 1,7 Traffic police 2,8 3,8 6,1 5,0 2,7 2,5 Price monitoring bodies 1,2 1,5 1,1 1,1 1,4 1,3 Standard monitoring bodies 1,1 1,3 1,3 1,1 1,3 1,3 Environment inspection bodies 1,2 1,2 1,4 1,3 1,4 1,2 Licensing bodies 1,1 1,1 1,2 1,3 1,5 1,3 National Anticorruption Center 1,3 1,1 1,8 1,1 1,0 1,0 Other ministries and departments 1,4 1,2 1,5 1,3 1,8 1,6 Local authorities 1,5 1,3 2,7 1,2 1,6 1,2 Labour inspection 1,4 1,2 1,4 1,3 1,3 1,3 Most often, companies are verified by the State Tax Service and the Fire Department (DES): Table 35. Frequency of inspections (calculated for all companies contained in the sample) Survey period 2012 2013 2014 2015 2016 2017 Inspection bodies State Tax Service 1.3 0.8 1,1 0,7 0,48 0,64 Fire department (emergency situations) 0.7 0.5 0,8 0,4 0,29 0,50 Sanitary epidemiologic services 0.5 0.3 0,9 0,3 0,17 0,23 Police 0.5 0.3 1,6 0,3 0,18 0,20 Traffic police 0.6 0.8 0,6 0,9 0,22 0,28 Price monitoring bodies 0.1 0.1 0,1 0,1 0,06 0,05 Standard monitoring bodies 0.2 0.1 0,2 0,1 0,04 0,05 Environment inspection bodies 0.2 0.2 0,3 0,2 0,04 0,15 Licensing bodies 0.2 0.1 0,1 0,1 0,11 0,10 National Anticorruption Center 0.3 0.1 0,1 0,1 0,01 0,03 Other ministries and departments 0.2 0.2 0,2 0,2 0,23 0,11 Local authorities 0.4 0.3 0,5 0,2 0,19 0,22 Labour inspection 0.8 0.6 0,6 0,4 0,20 0,31 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Taxes 59 Cost of Doing Business 12 Taxes 12.1 Regulatory framework The tax system in Moldova is regulated by several normative and legislative acts. The principal document is the Tax Code approved on 24 April 1997, completed in the subsequent years. Currently it includes ten titles: 1. General provisions 2. Income tax By region, companies in the Centre 3. Value added tax (54,4%) and Chisinau (51,1%) employ full-time accountants less often than 4. Excises companies in the North (98,4%) and 5. Fiscal administration South (72,7%). Companies in Chisinau 6. Real estate tax and Central region most often use part- time or outsourced accountants. 7. Local taxes 8. Taxes on natural resources By sector, the largest share of companies employing full-time 9. Road traffic taxes accountants are working in Industry 10. Other tax regimes (72,9%). The lowest share is accounted for by companies in R&D, science, 12.2 Administration of taxes legal, notarial and consulting activities (44,8%). According to respondents, an average of 5,7 types of taxes are Companies with more than 10 employees employ full-time accountants paid in the Republic of Moldova. The number of taxes has more often (72,2%) compared to essentially not changed over the previous years. companies with up to 10 employees (55,2%). 58 percent of companies employ full-time accountants to calculate and pay all taxes in due time. Their share has decreased compared to last year (see Table 36). The share of those keeping their accounts on their own has fluctuated over the past eight years below 10%. The decreasing trend in the number of full-time accountants is primarily due to the increasing degree of digitalization in Finance and Accounting, which also led to a reduction in bureaucracy in this field. Table 36. The necessary number of accountants to ensure timely and correct payment of taxes Survey period 2010 2011 2012 2013 2014 2015 2016 2017 Resources Hire accountants, full time 78% 74% 67% 64% 73% 64% 71% 58% Average number of full-time 1,2 1,2 1,2 1,2 1,3 1,2 1,1 1,1 accountants Only part time accountants or 28% 26% 35% 37% 19% 32% 28% 37% outsourcing Keep tax records on their own 2% 9% 5% 8% 8% 9% 8% 5% About 23% of the profit obtained in 2016 by respondent companies was reinvested in 2017. The share has been steadily decreasing in recent years. The electronic filing of tax returns and tax calculations has reduced considerably the amount of time spent on drawing up the statements. However, in 2017, the time spent on filing statements has slightly increased (see Table 37). Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Taxes 60 Cost of Doing Business Table 37. Time spent to submit a statement, hours Type of tax 2015 2016 2017 Value added tax 2,8 1,8 2,6 Personal Income Tax 2,4 1,7 2,2 Corporate Income Tax 3,3 1,9 2,5 Contributions to National Social Insurance Fund 2,2 1,5 2,1 Landscaping tax 1,6 1,2 1,9 Contributions to National Health Insurance Company 1,8 1,4 1,8 TOTAL 14,1 9,5 13,1 12.3 Main difficulties in paying taxes The procedure to calculate, report and pay the corporate income tax proved to be the most difficult (see Table 38). On third of respondents encounter difficulties in paying this tax. It's important to note that its share has been increasing for the fourth consecutive year. Table 38. Taxes that generate most difficulties Problems 2013 2014 2015 2016 2017 Value added tax 2,7 1,7 2,4 2,3 2,7 Personal income tax 2,6 1,6 2,4 2,5 2,7 Corporate income tax 3,0 1,8 2,7 2,8 2,9 Contributions to National Social Insurance Fund 2,5 1,7 2,5 2,3 2,5 Landscaping tax 1,9 1,4 1,8 2,1 2,3 Contributions to National Health Insurance Company 2,2 1,6 2,1 2,2 2,2 Figure 30. Taxes that generate most difficulties VAT -8% -19% 21% 20% Income (natural persons) -8% -17% 26% 19% Income (legal persons) -16% -18% 25% 16% Contributions to NSIH -5% -15% 30% 23% Landscaping -4% -13% 31% 31% Contribution to NHIC -2% -11% 35% 29% -40% -20% 0% 20% 40% 60% 80% Significant problem Critical Insignificant Not difficult An insignificant number of respondents mentioned certain changes in conditions and procedures related to the calculation and payment of taxes (see Figure 31). Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Taxes 61 Cost of Doing Business Figure 31. Changes in the tax system 0% 20% 40% 60% 80% 100% 8% 88% 4% more difficult no changes easier Confirming the above-mentioned indicators, Table 39 shows the main problems related to tax procedures, assessed on a scale of 1 to 5. The biggest problem is the unclearness of fiscal and accounting procedures. Table 39. Problems encountered in the taxation system Survey period 2012 2013 2014 2015 2016 2017 Problems Impossibility to project the future number of taxes 3,0 3,3 2,2 2,4 2,5 2,9 The whole fiscal and accounting process is complicated and 3,1 3,5 2,4 2,8 2,7 3,1 unclear High sanctions for errors 3,5 3,8 2,8 2,9 2,8 2,7 Lack of fixed rules 2,8 3,1 2,2 2,4 2,7 2,5 Total dependence on fiscal inspectors, lack of respect 2,8 3,0 2,0 2,2 2,5 2,1 High tax rates 3,7 3,6 3,3 2,9 2,8 2,4 Unofficial payments 2,1 2,3 1,3 1,9 2,3 2,1 12.4 Summary of analysis There have been no significant changes in the last year related to the number of taxes to be paid or the accountants employed by companies. Most respondents did not notice any changes in the terms and procedures related to tax. Table 40. Comparing the tax administration system Survey period Indicators 2011 2012 2013 2014 2015 2016 2017 Average number of taxes 6,1 7,1 7,0 7,5 5,9 5,6 5,7 Number of full-time accountants 1,2 1,2 1,2 1,3 1,2 1,1 1,1 The steadily decreasing share of reinvested profit can have two causes: companies generate less money or the pessimistic expectations in terms of business environment improvement. It is worth mentioning that businesses are now less worried about the high tax rates but rather dissatisfied with the lack of clear procedures and a predictable environment. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Price regulation 62 Cost of Doing Business 13 Price regulation 13.1 Regulatory framework Government Decision no. 774 of 20 June 2016 on the Pricing of Socially Important Goods is the main document governing price regulation. In most cases, products can be marketed at free-market prices. Following the approval of the Respective Decision, only a few food products are now be marketed with regulated additions. The government keeps the right to regulate prices for socially important domestic and imported goods that are marketed with a trade margin not exceeding 20 percent. Exceptions were set for bread and knot-shaped bread, sold with a trade margin not exceeding 10%. Socially important goods, both imported as well as domestic, which have undergone processing by trading units, are marketed with a trade margin not exceeding 40% of the total purchase price/delivery price. If the characteristics of the goods are not altered, even if having undergone some type of technological processing, the seller will not be deemed as a manufacturer. Regardless of the number of units involved in the supply chain, trade margin's final size should not exceed the limit set from the purchase price/delivery price. 13.2 The extent of goverment's intervention in price setting In around 13% of cases companies said that the government intervenes in setting prices for their goods. The share of sales at regulated prices varied between 1 and 99% per total, with The largest share of companies that are marketing goods and services at state- an average of 29%. regulated prices are found in Transport (27,9%) and Trade (18,5%). The lowest On average, 3,9% of total sales of the companies in Moldova share is accounted for by companies were carried out at government regulated prices. carrrying ouy R&D, science, legal, notarial and consulting activities (5,2%). Most often, the state intervenes in price formation in companies located in the 13.3 Perception of price regulation South (25%). In Chisinau, 12,1% of companies are found in this category. In 50% of cases, the state intervenes in companies' pricing by issuing a limit on trade margins (see Table 41). The share did not change significantly compared to previous years. Table 41. Methods used by government to control prices Method 2010 2011 2012 2013 2015 2016 2017 By limiting profitability 21% 11% 19% 20% 19% 20% 15% By limiting prices 19% 21% 24% 23% 34% 38% 35% By limiting the trade margin 61% 68% 57% 57% 47% 52% 50% 13.4 Summary of analysis Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Price regulation 63 Cost of Doing Business In the last three years, the share of companies whose products were sold at state regulated prices has undergone minor changes. After the slight decline observed in 2016, the sales volume at regulated prices has fallen back close to 2015 levels. In 50% of cases, the state intervenes in companies' pricing by issuing a limit on trade margins. Table 42. Price regulation in the Republic of Moldova 2010 2011 2012 2013 2014 2015 2016 2017 Share of businesses subjected 31% 26% 24% 24% 17% 12% 10% 13% to price regulation Share of prices subjected to 18% 10% 8% 10% 10% 4% 3,5% 3,9% state regulation Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Regulation of labour relations 64 Cost of Doing Business 14 Regulation of labour relations 14.1 Regulatory framework The main legislative documents governing labour relations are as follows:  Labour Code of the Republic of Moldova (Law no. 154-XV of 28 March 2003);  Law no. 847-XV of 14 February 2002 on Remuneration;  Government Decision no. 743 of 11 June 2002 on Salaries of employees in financially autonomous units;  Government Decision no. 152 of 19 February 2004 on Compensation quantum bonus for work in adverse conditions;  Government Decision no. 165 of 9 March 2010 on Minimum guaranteed salary quantum in the real sector. According to the amendments to Labour Code introduced by Law 254 of 09 December 2011, the employer is obliged to provide employees with a nominal access permit at the workplace. In his turn, the employee is required to carry at all times the nominal access permit provided by the employer. Starting 1 January 2018, the employer will no longer have to approve the staff structure within the first month of starting the business activity, and further - in the first month of every calendar year. The employer will no longer have to submit, within 2 months from the date the staff lists were approved, a copy to the territorial labour inspectorate under whose jurisdiction the business is located. Starting 1 January 2019, the requirement to complete (paper-based) labour books upon start or end of employment will be removed. 14.2 Availability of workforce The largest number of companies facing Three quarters of respondents stated that they have the staff shortage are working in Industry required number of employees to meet the needs of the (30%). company at the time of interview. An insignificant number By region, the largest share of companies that are short of staff is of respondents said that their company has staff surplus. accounted for by Chisinau (26,7%) and Every fourth respondent said they do not have the necessary Central region (27,9%). number of employees. Companies with more than 10 employees experience staff related problems to a greater extent (30,9%) compared to companies with up to 10 employees (22,3%). Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Regulation of labour relations 65 Cost of Doing Business Table 43. Assessment of labour force availability Survey period 2011 2012 2013 2014 2015 2016 2017 More than I need 3% 2% 5% 3% 8% 5% 2% As much as I need 76% 71% 60% 77% 69% 76% 73% Less than I need 20% 26% 32% 18% 20% 19% 25% No specific difficulties related to labour relations could be identified given their almost equal shares (see Table 44). The requirement to obtain and return the medical insurance policy within the set deadline is no longer a problem for companies. A small number of companies said they were affected by this problem. A relatively low number of companies are dissatisfied with the frequent visits of the labour inspection (16%), even if it has slightly increased compared to 2016 (15%). Other procedures and problems shown in the Table below were rated as being difficult by a share ranging between 21 and 23% of total respondents. Table 44. Assessment of main problems related to labour relations regulation Problems 2012 2013 2015 2016 2017 Obtaining permission from the Labor Inspection to initiate 2,2 2,3 2,0 2,1 2,4 the activity Hiring only under an individual contract of employment 2,2 2,4 2,1 2,2 2,5 Obligation to pay the minimum salary 2,3 2,4 2,2 2,3 2,4 Frequent inspections by labour inspection 2,0 2,0 1,8 2,1 2,3 Complicated process of staff reduction 2,2 2,3 1,9 2,5 2,5 Complicated process of staff record-keeping 2,4 2,4 1,9 2,4 2,6 Obtaining and returning the medical insurance policies within 2,5 2,1 1,8 2.2 2.2 the established deadline Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Execution of contracts 66 Cost of Doing Business 15 Execution of contracts Most often, the state intervenes in the Nearly 4% of respondents said that the state intervened process of concluding contracts in Industry (7,1%), and least often in Trade in their conclusion and execution of contracts. With (only 1,9% respondents). small fluctuations, the average stood at the same level In the Northern region, the state throughout 2005-2017. intervened in only 1,6% of the companies, compared to the 9,1% share This area of regulation has a low impact on business revealed by companies located in the South region. The indicator for Chisinau activity (see Table 45). stands at 3,5%. Table 45. Monitoring the execution of contracts in Moldova 2009 2010 2011 2012 2013 2014 2015 2016 2017 Share of companies whose 10% 4% 3% 6% 6% 4% 5% 5% 4% contracts were monitored Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Promotion of personal interests of public servants 67 Cost of Doing Business 16 Promotion of personal interests of public servants In less than 3% of cases, managers said that public servants have interfered in their business activity. The extent of intereference has not changed compared to last year and is several times lower compared to previous years. Table 46. Promotion of personal interests of public servants 2012 2013 2014 2015 2016 2017 Share of companies claiming that public 4% 8% 4% 8% 3% 3% servants interfered in their business activity Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Evaluation of the judiciary system 68 Cost of Doing Business 17 Evaluation of the judiciary system 17.1 Regulatory framework The settlement of disputes between companies in the The highest share of companies that Republic of Moldova is carried out through courts, settled disputes over the past 2 years was noted in Constructions sector according to Law no. 225-XV of 30 may 2003 on Civil (37,1%), the lowest - in R&D, science, Procedure Code or through arbitration courts, according to legal, notarial and consulting profiled companies (10,3%). Law no. 23 of 22 February 2008 on Arbitration. By region, the share of companies Disputes with government authorities are regulated by Law ranges from 15,9% in the South to 25% in the Central region. on Administrative Contentious (no. 793-XIV of 10 February 2000), republished on 3 October 2006). 17.2 Methods used to settle disputes In the last two years, one respondent in five had to settle disputes with state authorities or partners. Their share has practically not changed in the last four years. Figure 32. Companies that had to settle disputes 40 35,8 35 31,7 31,5 30 23,4 25 19,9 21 21 20 18 20 % 15 10 5 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 Surveyed year In 71% of cases, companies had conflicts with other business entities, the other 29% – with state authorities. 46% of the companies have filed a lawsuit to resolve the dispute. The share of companies that resort to illegal methods to solve their problems is steadily declining. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Evaluation of the judiciary system 69 Cost of Doing Business Table 47. Methods used to solve conflicts, % of companies that had to solve conflicts 2011 2012 2013 2014 2015 2016 2017 Turned to state bodies 31 35 48 14 25 43 34 Filed a lawsuit 52 61 49 69 46 64 46 Illegal methods 14 8 7 Various unofficial, but legal methods 34 27 30 17.3 Assessing the efficiency of using courts The main reasons why businesses do not turn to courts is the long waiting period for the decision making and the availability of other, more effective methods. Table 48 shows the results of assessing the reasons by scoring from 1 to 5, where 1- the least important reason and 5- the most important reason. Table 48. Reasons for not going to court Reasons 2014 2015 2016 2017 Long waiting period 3,1 2,7 2,5 2,5 Decision will be incorrect because the courts are corrupt 2,9 2,4 2,3 1,7 Decision will be incorrect because the court is incompetent 2,3 1,8 2,4 1,7 High costs of court services 2,7 1,8 2,1 1,9 High costs of legal services 2,7 2,0 2,0 1,9 The dispute is not very serious 3,5 2,7 3,2 2,3 Other methods are more efficient 3,5 2,2 2,1 2,4 Court decisions are not enforced 2,4 1,8 1.9 1,5 Around 41% of companies that resolved their disputes in courts were satisfied with the procedures and the outcome, another 24% were not happy with the result. On average, respondents rated their satisfaction at 3,17 points on a scale from 1 to 5, which would result in a 54% satisfaction degree. The indicator has not changed compared to last year. 17.4 Summary of analysis During the last two years, around 20% of the surveyed economic entities had to settle disputes (with partners, clients or state authorities). In less than half of cases they took the dispute to court. Table 49. Efficiency of resolving disputes through courts 2013 2014 2015 2016 2017 Respondents who had to settle disputes,% 36 18 21 21 20 Respondents satisfied with resolving through court,% 49 33 31 48 41 Taking court action, degree of satisfaction 3,25 2,90 2,83 3,15 3,17 Taking court action, degree of satisfaction, % 56 48 46 54 54 The key indicators characterizing the capacity of the judiciary system to resolve commercial disputes have not changed compared to last year. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Conclusions 70 Cost of Doing Business Conclusions The general time indicator has maintained its position of last year, following a two percentage point drop compared to 2015. The indicator quantifies the general perception of managers and entrepreneurs in terms of attractiveness of the business environment. Another indicator reveals the share of economic entities that noticed improvements in the business environment, which increased by seven percentage points as compared to 2016. Registration process Procedures for the primary registration of a company have changed insignificantly. Both the amount of time to register with the SRC and the time spent by entrepreneurs have not changed compared to last year. Procedures for amending the incorporation documents have been simplified. The two indicators mentioned above are decreasing. Only 9% respondents said that registration procedures are difficult. Regulation in Constructions The number of companies that build new spaces on their own is steadily decreasing. Only six companies out of a total 629 have built new spaces on their own. The number of companies that changed the use of premises has increased: almost 20% of companies that moved into new spaces or 5,5% per total surveyed companies. Relevant authorizations are obtained in less time compared to last year. Licensing In 2017 there were no significant changes in the licensing conditions, as mentioned by 76% of the survey participants. The costs and time to obtain licenses have virtually not changed since last year. The share of companies that paid bribes to expedite this procedure has declined. Only one company in five faces difficulties in obtaining the license. Notification of a trade activity The efforts of central authorities to simplify trade activities were in most cases sabotaged by local public authorities, which, contrary to the current legislation, requested the same documents that were neccessary to issue a trade authorization. Only 37% of respondents said that notification procedures are easier compared to the process of obtaining trade authorizations. Regulation of imports The conditions for the import of goods have worsened in 2017, as confirmed by about 28% of respondents, who think that procedures have become more difficult. Both time and cost of import customs clearance procedures have increased in the current year. The most problematic aspect revealed by respondents is the customs' practice to calculate taxes on imported goods based on higher prices than their real value. In consequence, companies pay more in taxes to contribute to the budget. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Conclusions 71 Cost of Doing Business Regulation of exports Respondents' perception of procedures regulating exports is divided: almost 20% think that they are now less difficult, while almost 30% claim the opposite. The amount of time to complete a procedure is almost equal to the 2013-2016 time indicator. Certification of goods Costs of certification of goods have increased significantly over the past year. The amount of time required to certify individual batches of goods declined considerably, reaching the lowest level observed during 2005-2017. The amount of time required to certify mass-manufactured goods has not changed since last year and is 24% lower compared to 2015. Even though the time has been reduced and the costs have risen, only 10% of respondents are dissatisfied with overly high amounts of money they have to pay to the certification bodies. Only 26% think that procedures take too long to complete. Sanitary operating authorizations The procedures for obtaining sanitary authorizations have not changed significantly throughout the last year. Very few (10%) respondents mentioned having experienced difficulties in obtaining this type of authorization. Sanitary certification of goods The number of companies that were required to obtain sanitary certificates is insignificant: 8% of all respondents. The conditions for obtaining the certificates are practically the same as last year. The time has slightly decreased from 5,6 to 4,9 days. A small number of companies encounter difficulties in complying with related procedures. Phytosanitary certification Only 6% of all surveyed companies were required to obtain phytosanitary certificates. These procedures have not changed during the last two years. The share of respondents who mentioned improvements is practically equal to the share of those who experienced a worsening in this area. Inspections Even though in 2017 the moratorium on inspections was not in place, their number increased moderately, falling below the level of 2015. Instead, the duration of an inspection has doubled compared to last year and is also a 50% increase compared to 2015. Taxation system The most important problem faced by company accountants is the calculation of corporate income tax. An insignificant number of respondents mentioned having noticed changes in tax calculation and reporting procedures. Price regulation No significant changes in the degree of price regulation were observed between 2015-2017. According to the survey data, about 3,9% of goods were marketed at regulated prices, 50% of which - by limiting the trade margin. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Conclusions 72 Cost of Doing Business Regulation of labour relations An increasing number of companies face shortage of staff, which left behind other difficulties related to the regulation of labor relations. Execution of contracts State's intereference in the process of concluding and executing contracts is a rare practice - 5% per total. The share of companies whose contracts were verified by state representatives has not changed throughout 2005-2017. Judiciary system One in five respindents had to settle disputes over the past two years with other economic entities or state institutions. Nearly half of them went to court to settle the disputes. Only 7% turned to illegal methods to solve the problem, even though less than half of respondents who went to court were not satisfied with the outcome. Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Conclusions 73 Cost of Doing Business Table 50. Comparison of main indicators Survey period Indicators 2011 2012 2013 2014 2015 2016 2017 General time indicator, % 10 10 11 11 10 8 8 Registration (including changes in the registration documents) Time to register, days 15 13 9 10 12 7 8 Costs to register, $ 136 108 112 71 99 99 73 Time to amend the documents, days 9 6 6 8 7 6 8 Construction Renovation and reconstruction, days 26 38 39 30 31 36 23 Licensing Average number per company 1,3 1,3 1,4 1,4 1.4 1.1 1.4 Time to obtain a license, days 18 16 18 14 11 12 11 Average costs, $ 240 266 294 402 163 172 179 Share of unofficial payments, % 7 9 8 1 15 18 13 Import Time to certify imported goods, days 9,6 7,4 5,9 13,2 9,7 6,2 5.7 Expenses incurred to certify imported goods, $ 80 83 120 350 76 202 137 Time to complete customs procedures, days 1,9 2,7 2,5 2,0 1,5 2,7 3,1 Expenses incurred on customs procedures, $ 144 152 158 261 136 287 307 Export Time on customs procedures, days 1,6 1,7 2,0 2,0 2,1 1,9 2.1 Expenses incurred on customs procedures, $ 85 89 152 213 - 172 105 Certification of goods and services (individual batches) Time to obtain a certificate, days 12 12 10 11 9 8 3 Costs, $ 83 145 124 167 57 46 106 Certification of goods and services (mass manufactured goods) Time to obtain a certificate, days 13 17 12 10 13 10 10 Costs, $ 158 191 158 311 63 84 122 Sanitary operating authorizations Share of respondents that obtained sanitary 61 60 53 47 34 34 39 operating authorizations, % Time to obtain an authorization, days 8 8 6 10 9 7 7 Total costs, $ 67 94 71 210 60 71 75 Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra Conclusions 74 Cost of Doing Business Survey period Indicators 2011 2012 2013 2014 2015 2016 2017 Share of unofficial payments, % 17 27 21 11 17 9 10 Sanitary certification of goods Share of respondents who obtained sanitary 8 certificates, % Time to obtain a certificate, days 5 Total costs, $ 60 Share of unofficial payments, % 19 Phytosanitary certification Share of respondents who obtained phytosanitary - - - - 7 6 6 certificates, % Time to obtain a certificate, days - - - - 2 2 2 Total costs, $ 35 37 34 Share of unofficial payments, % - - - - 10 9 10 Inspections Average number of inspections per company 4,2 5,2 3,6 6,5 3,8 2,0 2,9 Average annual time of inspections, days 7 6 5 5 0,95 0,63 1,44 Administration of taxes Employ full-time accountants 74% 67% 64% 73% 64% 71% 58% Number of permanently employed accountants 1,2 1,2 1,2 1,3 1,2 1,1 1,1 Price regulation Companies subjected to price regulation, % 26 24 24 17 12 10 13 Average share of prices regulated by the state 10 8 10 10 4 3,5 3,9 Execution of contracts Companies subjected to regulation of contracts, % 3 6 6 4 5 5 4 Judiciary system Share of respondents that turned to state 31 35 48 14 25 43 34 institutions to settle disputes, % Share of respondents that turned to courts to settle 52 61 49 69 46 64 46 disputes, % Share of respondents that used illegal methods to - - - - 14 8 7 settle disputes, % Share of respondents that used unofficial, though - - - - 34 27 30 legal methods to settle disputes, % Competitiveness Enhancement Project (CEP II) AOCDER Promo-Terra